It was 1970s. Rank Xerox, part of Xerox Corp, was facing difficulties in business. From mid 1960s to the mid 1970s, the profit of the company had rose above 20 per cent. But by the late 1970s, it started losing a significant share of the photocopier market. Some of its Japanese competitors were introducing copiers to the market with very lower prices, and as a result, the company came on the verge of collapse.

Xerox fought back in an unique way. They decided to learn from its competitors as they felt that their company could learn and adapt the best of its competitors' practices. And to the surprise of all, the technique, which later came to be known as 'benchmarking', worked like a magic and saved the company from being crushed by Japanese competitors.

Xerox' s success with benchmarking led to wide acceptance of the concept in America in the 1980s. In the late 1980s and early 1990s, a number of UK companies with American connections started applying benchmarking to their operation. Companies like General Motors, AT&T, General Electric, Mlliken, Motorola, and Dupont all did welcome the concept and were primarily responsible for the initial impetus.

What is benchmarking
So, what does benchmarking really mean? Benchmarking has often been defined in various ways by different companies. Rank Xerox, the pioneer user of this technique defined it as "the search for industry best practices that lead to superior performance." The European Benchmarking Code of Conduct defines benchmarking as "making comparisons with other organizations and then learning the lessons that those comparisons throw up".

There are innumerable definitions of benchmarking but in broader sense benchmarking means a learning process for improvement and this learning comes from others. In other words,  benchmarking involves sharing information for learning from others and adoption of best practices  in order to bring changes in performance. Benchmarking can be a very important management tool irrespective of nature of business, type of industry, management control, etc.

Benchmarking and SMEs
Can benchmarking be an effective management tool for SMEs (Small and Medium Enterprises)? Benchmarking often involves examining other organizations within the same industry. Most SMEs find their businesses as too unique to warrant detailed comparison across industries, and therefore they fail to recognize any meaningful benefit from the technique. But this is only one part of the story. Many analysts believe that benchmarking can be a very effective tool of management for SMEs. If they find their business too unique, they can from examining practices outside their own industries.

SMEs can learn from the best practices in business efficiency, innovation, and financial success can be found every day in all types of industries and businesses. Benchmarking is not merely a concept but a proven tool and implementation of this technique can be very usueful to SMEs not only in improving the performance level but also in bringing the value addition through identification and sharing of key performance factors for peer organizations, evaluating performance measures and setting goals, and encouraging collaboration on the development of industry performance
measurements.

Types of benchmarking

• Strategic benchmarking: It involves examining long-term strategies and general approaches of another organization with the objective to improve core competencies & capability for dealing with external changes, develop new products, etc. Implementing this type of benchmarking is difficult and usually takes a long time to materialize. A business should consider implementing strategic benchmarking only for re-aligning business strategies that have become inappropriate.
• Performance benchmarking: In this type of benchmarking technique, benchmarking partners are drawn from the same sector. This technique is usually applied to compare and understand performance characteristics of key products and services. A business could compare its key areas of performance with that of a industry leader from the same sector and try to find out ways for improving its own performance.  
• Process benchmarking: This method can be used to earn quick benefits. Some critical processes and operations are compared to that of a benchmarking partner/partners that perform similar work. This type of benchmarking method could be very effective if applied to back-office processes.      
• Functional benchmarking: In this type of benchmarking, a company focuses on improving activities of services for which counterparts do not exist. Focus is usually kept on improving a single function (usually a complex one such as Human Resources, Finance and Accounting and Communication Technology, etc.) by benchmarking with a partner/partners from different sectors or areas of activity. This type of benchmarking can lead to innovation and dramatic improvements in the operations and processes of an organization.   
• Internal benchmarking: This method is used by an organization with several units within the same organisation. Management wants to spread the best practices of one unit quickly, throughout the organisation. The main advantage of this method is that it consumes less time and resources. In internal benchmarking, it becomes very easy to access sensitive data and information.
• External benchmarking: It involves benchmarking organisations or operations from outside organisation that are known to be best in class. Businesses which feel that there is a lack of good practices can look for  learning from those who are at the leading edge. External benchmarking usually takes long time for the results to come.

Steps for benchmarking
There are different models in benchmarking and the steps vary as well. Some basic steps related to benchmarking are:

• Planning: This step involves initial planning by management, informing the staff about the plan, choosing a team to operate the process, determining what to benchmark and why, determining information source, etc.  
• Research: At this stage, it is important to thoroughly research on the activity one wants to benchmark. This step involves checking information in libraries journals, etc.   
• Selecting a partner: After the initial stages of planning and research, the third stage involves selecting a benchmarking partner (or partners). It is advisable to establish a list of organizations which are well known in the industry for their best practices. After selecting a few potential partners (not too many, 3 is sufficient) from the list, it is now to contact them and explain them the objectives of your organization.
• Collecting and sharing information: This is one of the most crucial stages where a business requires to focus on collecting information from its benchmarking partners - information which could later be implemented to improve its own processes. This is not a one-off action and the benchmark team of the business may visit the benchmark partners' organization several times for full understanding of how things work.      
• Analyze and Adaption: This step involves summarizing and analyzing the data collected to find out in which areas improvement is required. At this stage, the business needs to develop strategies and and agree on a action plan.
  

Benchmarking has proved to be one of the most effective tools of management for bringing about quantum-leaps in performance of an organization. It helps a business to learn from the experience of others and improve itself by replicating the best practices already undertaken by someone else in the industry. It provides opportunities for staff to learn new skills and also boosts their confidence in developing new approaches. For SMEs, which are constantly seeking new ways of doing things, benchmarking could be an effective 'wake-up call' and an impetus for change towards development.