Risks of Benchmarking
Benchmarking is an exercise where representatives of a business visit another organization or department that excels in its industry. The aim of the exercise is to observe the organization's or department's activities, programs and strategies and the resulting performance as compared to its own. Types of benchmarking processes include internal benchmarking, which occurs within an organization, or external benchmarking, in which representatives visit other businesses. Nonetheless, there are possible risks to adopting any benchmarking process.
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Time Consuming and Budget
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The process of benchmarking is time consuming since the representatives must take time away from their daily work schedule to observe the activities of another business or department; this disrupts the daily operations of the business. The reps also require adequate time for observation and compiling information concerning the benchmarking process. The company also needs to set down a budget for the process and cater to the representatives, like transport expenses in the case of external benchmarking. The firm may also choose to hire consultants for the project, which requires budgeting for their payment.
Lack of Insight on the Process
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Benchmarking is a tool for initiating change by comparing the most efficient practices and operations in the market and implementing them into the business. The process, however, does not provide information on the obstacles and errors the business or department experienced before settling into a certain program or strategy. This presents the risk of the business falling into similar constraints when trying to implement the program. It is important for the business to first research the business strengths and weaknesses prior to the benchmarking process and finally develop its own program on how to interpret the results to benefit its enterprise.
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Limited Comparison Level
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The internal benchmarking process has the disadvantage of a low comparison level. When a business only compares performance and means of change within the organization, the comparison is limited to their business and the results may not benefit the organization as much as a comparison with a wider competitive market. Additionally, the final results may not be accurate as there may be a prejudicial view among the different departments in the organization.
Lack of Cooperation
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The benchmarking process may prove difficult in the case of acquiring cooperation from other organizations to allow the business to use them as a platform for analysis; this is especially evident in external benchmarking. Competitors may be reluctant in showcasing their business secrets and strategies to a competitor in case they later surpass them in the market.
Complacency
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The risk of complacency results mainly after the completion of the benchmarking process. If the process is successful and the business excels past its competitors, the business could settle down and stop the development process. The company may not be open to new ideas as the business already reached the goal of surpassing market competitors. A business should instead develop a plan to maintain a competitive edge.
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