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When you think of benchmarking, the usual picture that comes to mind is a comparison of your product or service with that of your competitors.  In their book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Ikel Harry, Ph.D., and Richard Schroeder show that there are three types of benchmarking.

1.  Internal Benchmarking

This kind of benchmarking is a comparison among diverse functions within a single company, to see how efficiently processes are carried out between divisions.    This is a type of benchmarking that is good for rationalizing the processes in a company to make them internally consistent.

2.  Competitive Benchmarking

This kind of benchmarking is the one people normally think of when they hear the term “benchmarking.”   It is a comparison of the processes of one’s company with that of one’s direct competitors.  It is not just used for improving by using the “best practices” of competitors; it can be used to identify similar processes in a competitor.   This can make competitors potential candidates for mergers and acquisitions if enough similar processes can be identified, because the merging of the two companies will be less traumatic if their processes are similar.

Comparing customers’ reactions to one’s products to those reactions to one’s competitor’s products can also be instructive.  It can help your company recognize what its strengths and weaknesses are with regard to the competition.

3.  Functional Benchmarking

Less well-known that the other two types of benchmarking, this takes processes and compares them not with the processes of other competitors within the same industry, but across industries as well.   This requires processes that, of course, are not specific to an industry, but are used within the overall sector, for example, a comparison of the average number of annual training hours required of employees.  Here what you are doing is expanding the scope of the inquiry into what “best practices” are, and you are in fact widening the playing field of examples to learn from.   This is why it is the most forward-thinking of the three types of benchmarking, and the authors credit Motorola’s success on the Bandit pager project to a large extent on the extensive functional benchmarking they did to improve their manufacturing processes in preparation for the project.

So now having established the different kinds of benchmarking, at least with regards to how wide the base of comparison is to be, the authors then discuss why Six Sigma is helpful in the benchmarking process.   That is the subject of the next post.

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