Benchmarking

Benchmarking is a tool for improvement, achieved through comparison with other organizations recognized as the best within the area. It is the practice of being humble enough to admit that someone else is better at something, & being wise enough to learn how to match & even surpass them at it. (American Productivity & Quality Center, 1993) The purpose of benchmarking is not only comparing for the sake of evaluation, but learning for achieving improvements

A structured process

Comparing business processes, not only performance measures

Benchmarking is the process of continuously measuring & comparing ones business processes against comparable processes in leading organizations to obtain information that will help the organization identify & implement improvements
External Focus Learn from others

Improvement not evaluation

 Benchmarking is a method for continuous improvement that involves an ongoing and systematic evaluation and incorporation of external products, services and processes recognized as representing best practice. The philosophy of benchmarking is to create a changeoriented workplace culture within which participate, people-driven approaches to benchmarking creates an outward looking, cooperative, and responsive organization.

Benchmarking include identifying the performance

measures of competitors, measuring their performance levels, comparing their performance and then taking appropriate steps to close the performance gaps. Benchmarking can shed light on determining which company has the best or proven practice of performance to a particular function within an enterprise

 By understanding where best in-the-class companies

have achieved top performance for a given function, a firm can target clear and understandable goals. Learning new approaches by examining other organizations and then implementing those systems to improve a firms own business is a formalized way of managing change. In addition, identifying a competitors strengths and weaknesses can help a company achieve superior performance. Benchmarking is a systematic, structured approach to searching for best practice.

 Experience suggests that successful implementation occurs when a formal approach is adopted.
The organization using advanced models retain the fundamental principles of benchmarking but adapt them to match environmental and internal changes that are ongoing and specific. Clearly, the principle of benchmarking is evaluation. Benchmarking exercise should contain two ingredients. One is the companys performance. The second is identifying, measuring understanding external best practice.

and

Types of Benchmarking
Benchmarking is about comparing a company with other companies. One can compare processes, functions, products etc. Different types of benchmarking can be defined based on what is compared and whom it is comparing against Compare what? 1. Performance benchmarking, 2. Process benchmarking, 3.. Strategic benchmarking.

Compare against whom? Internal benchmarking Competitive benchmarking Functional benchmarking Generic benchmarking

performance measures (financial & operational) for the purpose of determining how good ones own company is compared to others

Performance Benchmarking is Comparison of

Process Benchmarking is comparison of methods &

practices for performing business processes, for the purpose of learning from the best to improve ones own processes

A Business Process can be defined as:

A chain of logically connected repetitive activities; that

makes use of the organizations resources; to refine an object (physical or mental); with the objective of producing specified & measurable results/products; for internal or external customers

Strategic Benchmarking is comparison of the

strategic choices made by other companies, for the purpose of collecting information to improve ones own strategic planning

Internal Benchmarking - A soft start

is comparison between departments, units, & subsidiaries. Mainly used within large corporations where different units are evaluated & compared to each other. If one unit performs better than others, practices can be transferred internally for improvement. The advantages are easy to define comparable processes data & information are easily accessible

Competitive Benchmarking - A sensitive area

is direct comparison of own performances/results against the best real competitors an extension of competitor analysis where instead of focusing on the industry average, focus is on the best competitors Due to legal & ethical limitations CB is often seen as superficial & focused on key figures.

Functional Benchmarking - To learn from your closest is comparison of processes or functions against noncompetitor companies within the same industry In FB benchmarking partners can be customers, suppliers, or other companies Easy to get in touch with such companies & the problems facing these companies are often similar.

Generic Benchmarking - Exercise in creativity

is comparison of own processes against the best
processes around, regardless of industry
finding companies in totally unrelated industries that perform similar processes require a solid portion of creativity potential for identifying new technologies or practices that will lead to breakthroughs is highest in GB

Steps in Benchmarking
1. Identifying the function (or best practice) to benchmark. 2. Identifying the best-in-class company. 3. Identifying the key performance variables to measure and collect the data. 4. Analyze and compare the data to what happens in your own company. 5. Project future performance levels of the benchmarked company. 6. Establish functional goals. 7. Communicate benchmark findings. 8. Develop action plans. 9. Implement specific actions and monitor progress. 10. Recalibrate benchmarks.

PITFALLS OF BENCHMARKING
Curt W. Reimann, who heads the Baldrige Award program at the National Institute of Standards and Technology, finds that a lot of people think benchmarking is instant pudding. It will not improve performance if the proper infrastructure of a total quality program is not in place.

Unless a corporate culture of quality and the basic components of TQM (such as information systems, process control, and human resource programs) are in place, trying to imitate the best-in-class may very disrupt operations.

 Failure to Involve the employees who will ultimately use the information & improve the process. Participation can lead to enthusiasm.
Perceive benchmarking as an ongoing process. It is not a one-time project with a finite start and complete date. Expand the scope of the companies studied. Confining the benchmarking firms to your own area, industry, or to competitors is probably too narrow an approach in identifying excellent performance that are appropriate for your processes

 Perceive benchmarking as a means to process improvement, rather than an end in itself.

Set goals for closing the gap between what is (existing performance) and what can be (benchmark) . Empower employees to achieve improvements that they identify and for which they solve problems and develop action plans. Maintain momentum by avoiding the temptation to put study results and action plans on the back burner. Credibility is achieved by quick and enthusiastic action.

Project Conception

Recalibration
Implementation Implementation Planning

Planning
Preliminary data Collection Best-in-Class Selection

Best-in-class
Assessment Data collection

Internal benchmarking

Competitor benchmarking

Functional benchmarking

Generic benchmarking

Performance benchmarking

Process benchmarking

Strategic benchmarking

Relevance / Value:

High

Medium

Low

Recommended combinations of types of benchmarking

Few Facts
Benchmarking can, however, spark ideas in the teamespecially if the teams use as their benchmarks companies from outside their own industries. If a team is going to benchmark, it should benchmark from the best in the world, not the best in its industry. Competitive benchmarking can be useful when comparing performance levels and/or strategies. Process benchmarking against competitors is on the other hand very difficult and will rarely be viable due to problems related to exchanging detailed and sensitive information about business processes.

 Functional benchmarking & generic benchmarking produce the highest value when combined with process benchmarking.

THE CORE OF BENCHMARKING

1. Benchmarking helps the organization understand and develop a critical attitude to its own business processes. 2. Benchmarking promotes an active process of learning in the company and motivates change and improvement. 3. Through benchmarking, the company can find sources for improvement and new ways of doing things their own organization. 4. Through benchmarking, reference points for measuring the performance of the companys business are established.

OBJECTIVES OF BENCHMARKING
Enable improvements through from those who are better, preferably from the best. Create an understanding of, and develop a critical attitude to, the companys business processes.

Create a sense of urgency for improvement and change and see the need for both continuous and breakthrough improvements. Emphasize the importance of being aware of changing customer needs.
Develop ambitious but achievable and operational goals.

 Create a better understanding of the business the company operates in.

Encourage creative thinking.

BEWARE !
Benchmarking includes both quantitative and qualitative analysis, i.e. both performance levels and how these levels are achieved.
Comparing key figures, often collected by external consultants, is a superficial and incomplete type of benchmarking.

 Just being presented with performance levels without taking part in the data collection or analysis oneself, leads to the three Ds of benchmarking; disbelief, denial & despair.
Effective benchmarking requires a feeling of ownership of data and information, both through development of the analysis and data collection. Benchmarking must be a continuous process - there will be new areas to benchmark and already benchmarked areas will be improved by others.

Barriers Against Effective Use of Benchmarking

Arrogance - We are best and do not need to benchmark!

Benchmarking is so easy, you just go ahead. There is no need to learn a systematic way of doing it!
Benchmarking what is easy to benchmark - but might be of little importance to the companys success. Impatience - skipping the planning phase to get on with the real benchmarking.

Benchmarking is not
a numbers game a consultants task a one time event that produces results overnight a copier machine that copies processes from one organization in to another company visits for the sake of the trip

industrial espionage.

S T R A T E G I C 1960s New management thinking

1970s Strategy Consultancies

1980s Xerox introduces benchmarking

1990s Active process bench marking

V A L U E

TIME

The Development of benchmarking

Benchmarking Process - The Benchmarking Wheel

To describe the activities that are included in a benchmarking study, a model of the benchmarking process is used.

This is a model or figure that indicates what steps and in what sequence they should be performed in a benchmarking study. The bench marking wheel describes how to perform a benchmarking study.

THE BENCHMARKING WHEEL

5
Adapt:Choose best practice,adapt to companys conditions & changes Plan : CSF, select process for benchmarking,document process & develop PM

4 2 Analyze: Identify gaps in Search: Find performance & find benchmarking the root causes partners 3 for performance gaps Observe:Understand & document partners process, both practice & performance

The basic content of the benchmarking process is: Select and document the process to be benchmarked.
Identify who perform this process best. Observe and analyze how the benchmarking partner performs this process. Analyze the cause for the gap in performance. Implement improvements based on this analysis. The benchmarking wheel pictures the phases in a sequential order.

Role of Critical Success Factors

The concept of best practice suggests there are a number of characteristics or features that are essential to a business if it is to compete successfully. Critical success factors (CSFs) are those characteristics, conditions or variables that when properly sustained, maintained or managed can have a significant impact on the success of a firm competing in a particular industry.

A CSF can be a characteristic such as a price advantage; it can also be a condition such as capital structure or advantageous customer mix; or industry structural characteristics such as vertical integration.

Typical CSFs in different sectors.

Automobile Industry
Styling (for family, for individual etc.) Strong dealer network (like Maruti Udoyg Ltd.) Manufacturing cost control Ability to meet environmental standards. (e.g.Euro -2000)

Electronic Industry

Manufacturing process: cost efficient, innovative Technological competence Faster product development

Food Processing Industry

New product development (like Nestle) Good distribution network (like Dabur) Effective advertising (like nestle)

 For any company the critical success factors that will facilitate the successful implementation of any selected strategy should be identified and related across the business.
The process requires that growth objectives be first established; second, a current profile of the activities and functions of the business (manufacturing, logistics and marketing) and thirdly, the critical success factors that underlay the successful companies (those who may be benchmarking candidates) are then qualified. It is unlikely that all of these critical success factors will be required in any one situation.

 The key task for management is to identify which are important prior to the development of its corporate strategy.

It follows that the critical success factors thus elicited are an important input into logistics strategy decisions. At both the corporate level and in the supply chain the CSFs become the basis for identifying best practice and than for benchmarking.
Successful strategy requires identification of relevant CSFs.

The CSFs should be addressed across the company.

CSFs and Their Strategic Implications

Critical Success Factor Price

Low price

Strategic Implication
Ability to exploit experience effects, profitability, across a wide range of volume activity

Flexibility

Design flexibility Ability to incorporate product/service modifications to existing products. Flexible capacity Ability to adjust volume.

 Order processing management Ability to response to order changes

Augmentation capability Innovative & creative product design Ability to offer complementary products and/or services Ability to develop and introduce new products/services to meet customer performance specifications quickly.

Quality
Dependability Low level of defect rates (PPM)

product performance Ability to produce high performance products or services.

 Reliability

Ability to provide reliable/durable products and services

Delivery
Quick response Accurate response Ability to provide fast deliveries. Ability to meet delivery accuracy promises.

Service

After sales services Provision of after sales support Field support Ability to complete product support Distribution coverage Widespread product availability Customized services Ability to provide specific aspects and levels of services

Benchmarking - A Part of the Companys Strategy

BENCHMARKS How good? What goals? Impact Ideas,values , and beliefs Vision Long term goals (markets, profits) Short term goals The vital few improvement projects

Impact

BENCHMARKING How? Practices & methods

The companys strategy and strategic plans should influence: What areas are benchmarked What partners it is a compared against. What changes will be implemented based on results from the benchmarking study. At the same time,benchmarking provides input to the companys strategic planning by: Uncovering practices of other companies that can be used as a source for ones own operational plans. Establishing performance measures that serve as reference points ad targets for the company.

ACT

5
ADAPT: ADAPT BEST PRACTICES

PLAN: PROCESS , DOCUMENTATION , AND MEASURES

PLAN
2

4 ANALYSE: GAP AND CAUSES

FACT - BASED MANAGEMENT DATA NEEDS DATA COLLECTION

CHECK

SEARCH: FIND PARTNER

3

DO

OBSERVE: OBSERVE THE PARTNERS MEASURES AND PROCESS

BENCHMARKING AND QUALITY IMPROVEMENT WORK

 Benchmarking should not be a completely independent activity cut off from the improvement efforts going on otherwise in the company. A benchmarking study must be seen in connection with the other quality activities and become an integrated part of these. Benchmarking is a process that needs to mature in the organization. After having completed one study, the process can be repeated and the barriers to effective use decrease with each repetition as previous experience and documentation is utilized.

P e r f o r m a n c e

Continuous improvement

Benchmarking accelerates improvement and change

Breakthrough

Continuous improvement
TIME

EFFECT FROM BENCHMARKING

Benchmarking should therefore used: For the business processes that have highest impact on the critical success factors. When the company possesses the necessary time and the necessary resources Following three elements must be balanced AMBITIONS

RESOURCES

TIME

PRECONDITIONS FOR USING BENCHMARKING Structural preconditions , the resources and skills required to conduct a benchmarking study: - financial resources: - time; - competencies; - competitiveness and development potential: - documentation of central business processes and areas. Cultural preconditions , the values , norms and attitudes that form the basis for a benchmark study: - international aspiration: -willingness to change: -willingness to share information

- Willingness

to share information

-management commitment; - employee participation Understanding and awareness of the companys business processes.

Legal Aspects of Benchmarking

All benchmarkers should be aware of existing legislation that might have an impact on or limit the legal use of benchmarking. Legal professionals should be consulted for a more - in -depth analysis of which parts of existing legislation might apply to the practice of benchmarking.

2. The process importance for the main functions of the company. 3. Processes that represent or impact obvious problems areas in the company. The decision can be based on : the use of analytical tools and techniques; gut feeling A critical success factor can be defined as: A limited number of factors that highly impact the companys competitiveness. Examples are: Price, quality, delivery time, product attributes, service, etc. with regard to CSF, the following questions must be answered: 1. What are the companys critical success factors?

Using a spider chart (comparison with competitors) Using a performance matrix Information from marketing surveys, etc. 3. What processes impact the most important critical success factors? Brainstorming Criteria testing