External Benchmarking

This involves comparing performance with that of other organizations. Organizations need to decide:
What activities or other dimension of the organization should be compared with others?
Who the other organizations should be?

How information on other organizations can be obtained? In reality external benchmarking can be time consuming and be hampered by the difficulty of obtaining relevant information .There are also problems of finding comparable organizations to bench mark against. Nevertheless, most organization will wish to asses their own performance relatives to industry norm. They could do this with reference to industry averages or the time performance of best performing organization. However a danger in relying solely in industry norm analysis is that industry may itself perform badly. Obviously the scope of cross industry comparison will be more limited but could relate, for example the employee cost or to research and development expenditure.

Perhaps a good example of how to conduct bench marking exercise comes from Xerox Company. It has following 10 steps which are to be followed according to the sequence in which they are presented:
 Identify what is to be benchmarked.
 Identify comparable companies.
 Determine data collection methods and collect data.
 Determine current performance levels.
 Project future performance levels.
 Communicate benchmark results and gain acceptance.
 Establish functional goals.
 Develop action plans.
 Implement action plans and monitor progress.
 Recalibrate benchmarks.
Like general benchmarking, HR benchmarking is extremely important. When information on HR performance has been gathered, it must be compared to a standard, which is a model or measure against which something is compared to determine its performance level. For example, it is meaningless to know that organizational turnover rate is 75% if the turnover rates at comparable organizations are unknown. HR benchmarking compares specific measures of performance against data on those measures in other “best practices” organizations. HR professionals interested in benchmarking try to locate organizations that do certain activities particularly well and thus become the “benchmarks.” HR Benchmarking is useful for following reasons:
 An organization can identify how its HR practices compare with the best practices.
 It helps organizations learn what type of HR practices work and they can be successfully implemented.
 They provide a basis for reviewing existing HR practices and developing new practices.
 They also help managers to establish a strategy and set priorities for HR practices.
Some of the common benchmarked performance measures in HR management are:
 Total compensation as a percentage of net income before taxes
 Per cent of management positions filled internally
 Rupee sales per employee
 Benefits as a percentage of payroll cost
Managers need to consider several things when benchmarking. Managers must gather information about internal processes to serve as a comparison for best practices. It is also important to clearly identify the purpose of benchmarking and the practice to be benchmarked, and as with most quality approaches, upper-level management needs to be committed to the project. Both qualitative and quantitative data should be collected because descriptions of programmes and how they operate are as valuable as knowing how best practices contributed to the bottom line.

To ensure the broadest information possible, managers should be careful to gather data from the companies both within and outside their industry. Benchmarking may actually limit a company’s performance if the goal is only to learn and copy what competitors have done and not to consider various options to improve their process. It is also important not to view HR practices in isolation from each other. For example, examining recruitment practices also requires consideration on company’s emphasis on use of the company’s staffing strategy. Benchmarking will not provide “right” answer. The information collected needs to be considered in terms of the context of the companies. Finally, benchmarking is one part of an improvement process. As a result, use of the information gathered from benchmarking needs to be considered in the broader framework of organizational change.

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