Elnathan, D., T. W. Lin and S. M. Young. 1996. Benchmarking and management accounting: A framework for research. Journal of Management Accounting Research (8): 37-54.
Summary by Mohamed Gomaa
Ph.D. Program in Accounting
University of South Florida, Spring 2002
Benchmarking Main Page | Research Methods Main Page
The authors state three goals for this paper. First, to integrate the literature and propose a research framework in which antecedent, contextual and outcome variables are developed. Second, to discuss the roles that benchmarking plays within the management accounting function. Third, to illustrate how researchers can apply the research framework when conducting studies to determine whether benchmarking an activity based management system has been successful and which variables play critical roles in leading to success.
Benchmarking is usually undertaken when an organization believes that others outside the organization have superior knowledge about processes, technology, quality or costing methods that are beyond the organization’s current state-of-the-art.
The benchmarking process has been modeled by practitioners in a variety of forms. Spendolini (1992) compared 24 models and identified a five-stage generic benchmarking model. The five stages are:
A FRAMEWORK FOR BENCHMARKING RESEARCH
Continuously comparing an organization’s performance on critical aspects of operations against the best-in-industry or the best-in-class helps determine which activities and costs should be targeted for improvement. The research framework developed by the authors consists of three sets of variables that organizations desiring to benchmark (benchmarkors) others (benchmarkees) should consider before embarking on a benchmarking project. The three sets of variables are:
and Lin’s Figure 1
Results of a Preliminary
Internal to organization
External to organization
Degree of Organizational
Prior Benchmarking Experience
Extent of benchmarking experience
Scope and Areas Selected
Key areas for study
Information Gathering and Sharing Method
Method of information collection
Non-financial Qualitative Measures
Changes in employee
There are three general sets of antecedent variables:
Preliminary competitive analysis can either be internal to the organization or external to the organization. There are three reasons why analysis internal to the organization can occur:
Management support is a critical factor in the success of benchmarking. There are several ways by which management support can manifest itself:
· A clear set of objectives should be developed that will serve as a focal point of the project and allow the organization to monitor its success. Evaluation can be problematic without a clear set of objectives.
· The organization should have long-term commitment to the project since most significant organizational changes take up to three years.
· A well-defined culture that empowers
employees can facilitate the implementation of the new system.
The organization's ability to identify
appropriate areas to be benchmarked is improved with greater organizational
experience. This experience helps the organization employ the most effective
information gathering and sharing methods. The availability and extent of
training to employees who manage and run the program is important to the success
of the program implementation.
There are three general sets of contextual variables:
A manager should clearly identify a
manageable process or a product that needs improvement during the initial
efforts at benchmarking. If the scope of the first benchmarking process is too
large and it fails, then this may discourage future efforts.
There are two dimensions that relate to information gathering and sharing:
There are three major types of information processing: product, function (process) and strategic. The two major methods of information collection for benchmarking are:
· Companies independently gather information about one or several other companies that excel in the area of interest.
· Involves the voluntary sharing of information through mutual agreement. It includes:
§ Typically pay a fee to gain access.
o Indirect/Third Party:
§ Involves hiring outside consultant to act as a liaison between the firms.
§ Participants meet openly to discuss their methods.
· Some researchers argue that the size of benchmarking partners
should be comparable
while others believe it is not a critical requirement.
· The number of benchmarking partners in a project follows the law of diminishing returns.
· Truthful and timely information is essential for successful benchmarking.
The incentives for benchmarking the
organization need to be understood since decision makers only select courses of
action where the expected benefits exceed the expected costs.
The authors suggest that the overarching measure is whether benchmarking objectives were met. Performance measures can be divided into financial and non-financial measure of outcomes or benefits. These measures are presented in figure 1.
The costs can be divided into:
· Include out-of-pocket expenditures.
· Those associated with the cultural change in
the organization and the potential resistance to change.
Roles for Benchmarking in Management Accounting
Management accounting is usually considered a finance function. Benchmarking in this area is being used in two ways:
Benchmarking An ABCM System
The development of an ABCM system is done internally and is based on historical costs. The authors argue that information provided by internal ABCM analysis alone is not sufficient since benchmarks derived from this kind of process may be suboptimal and noncompetitive. Therefore, the authors suggest that an organization needs to seek appropriate external benchmarks in order to improve performance and to use ABCM information more effectively.
Additional Research Needed on Benchmarking
The authors briefly discuss five ideas for further research.
investigations of the relative weight or best combination of variables
in their framework for successful benchmarking.
2. Studies of various types of
benchmarking related to products, functions and
strategies as related to management accounting systems.
3. Studies related to the most
effective method of information sharing and gathering,
and partner selection.
4. Research on modeling of
functional cross-industry cooperative benchmarking
to test predictions.
5. Studies related to
combinations of nonfinancial and financial measures, and
costs and benefits.