Industry group measurements are the measurement of various facets of operation and comparing these to similar measurements. Often the measures have little to do with productivity, customer satisfaction, or “best practice.” Many industry groups publish comparative data either privately (for members of the group or service only) or publicly or both. The Institute of Internal Auditors’ GAIN, i.e. Global Audit Information Network provides this kind of data privately to subscribers. The Institute also publishes biannual salary surveys and occasionally special studies of external audit fees and research on effective audit departments. These are considered as the “best practices.”
Best Practice Studies: Benchmarking Types
These are studies and lists of what works best. These are useful for benchmarking research, but they are not useful as metrics. What works best for an entity in its specific environment may not work the same way in another environment. These studies can be useful simulators, but they are not “benchmarks” per se. There are books, consultants and public accounting firms that report internal audit “best practices” gathered from research and consulting practice. The IIA published a book for audit committees that were a study of best practices.
Cooperative Benchmarking: Benchmarking Types
Cooperative benchmarking is the measurement of key production functions of inputs, outputs and outcomes with the aim of improving them. In an internal audit, we would study, for example, comparisons of costs per audit hour, time elapsed to distribute the final report, the percentage of recommendations accepted. Cooperative benchmarking is done with the assistance of the entity being studied (the benchmark “partner”). Often the entity chosen as a benchmark is one that has “best practices” in the area of interest or has won a major national or international quality award. Internal audit departments are increasingly interested in this method.
Competitive Benchmarking: Benchmarking Types
Competitive benchmarking is the study and measurement of a competitor without their cooperation for the purposes of process or product quality improvement. The latter is called reverse engineering.
A version of competitive benchmarking is a commission granted to a third party to study a group of competitors and share the results with all. The third party consultant is the only one who knows what data belongs to which entity.
There are other benchmarking terms that refer to or describe versions of these basic types. This lesson will focus on Cooperative Benchmarking the internal audit process.
Benchmarking is usually done within the same industry. However, benchmarking is often done between organisations that have a similar process, but they are in different industries. By benchmarking the process across industries, the organisation sometimes achieve greater results than by sticking to their own industry. Benchmarking a process across industries causes people to challenge some of the assumptions that are part of the problem.
Benchmarking as a tactical planning tool originated with Xerox Business Systems in the late 1970s. Japanese affiliates were selling better quality copies for less than the manufacturing costs of similar products in the USA. One of the first experiments in benchmarking was in the production logistics area (warehousing, picking, packing and shipping). Xerox Business Services benchmarked with L.L. Bean, a clothing manufacturer who had one of the best logistics operations in the world.