BENCHMARKING CONSIDERATIONS

CUSTOMER & COMPETITIVE INTELLIGENCE FOR PRODUCT, PROCESS, SYSTEMS & ENTERPRISE EXCELLENCE
Module 4 Strategic Management
Faculty Krupa Joshi

Benchmarking
Benchmarking is the process of continually searching for the best methods, practices and processes, and either adopting or adapting their good features and implementing them to become the best of the best.
Use benchmarking both for comparison of performance as well as to understand the potential for improvement

How is benchmarking used? Compare performance of an existing process against other companies best-in-class practices Determine how those companies achieve their performance levels Improve your own internal performance levels

Benchmarking

Best Practices, Processes & Products

Benchmarks & Benchmarking:

Ideas & Definitions

Benchmarking: is the on-going search for best practices that produce

superior performance when adapted and implemented in ones own organization. Emphasis: On-going outreach activity Goal: Identification of best operating practices When Implemented: Produces superior performance. Benchmarking: is the actual process of investigation and discovery that emphasizes the operating procedures as the things of greatest interest and value. Benchmarks: are measurements to gauge the performance of a function, operation, or business relative to others.

Performance Gap

Time

Customer Expectation Dilemma

Types of Benchmarking
Competitive Benchmarking Functional Benchmarking Internal Benchmarking Product Benchmarking Process Benchmarking Best Practices Benchmarking Strategic Benchmarking Parameter Benchmarking

Benchmarking Methodology
Best Practice Overlap

Competitive
Industry leaders Top performers with similar operating characteristics

Functional
Top performers regardless of industry Aggressive innovators utilizing new technology

Internal
Top performers within company Top facilities within company

Benchmarking Methodology
Checklist 1. Identify Process to Benchmark

Select

process and define defect and opportunities Measure current process capability and establish goals Understand detailed process that needs improvement

Benchmarking Methodology
2. Select Organizations to Benchmark

Outline industries/functions which perform your

process Formulate list of world class performers Contact the organization and network through to key contact

Benchmarking Methodology
3. Prepare for the Visit

Research the organization and ground yourself

in their processes Develop a detailed questionnaire to obtain desired information Set up logistics and send preliminary documents to organization

Benchmarking Methodology
4. Visit the Organization

Feel comfortable with and confident about

your homework Foster the right atmosphere to maximize results Conclude in thanking organization and ensure follow-up if necessary

Benchmarking Methodology
5. Debrief and Develop an Action Plan

Review team observations and compile report of

visit Compile list of best practices and match to improvement needs Structure action items, identify owners and move into Improve phase

Benchmarking Methodology
6. Retain and Communicate

Report out to business management and 6

leaders Post findings and/or visit report on local server/6 bulletin board Enter information on benchmarking project database

Sources of Information
Library Database Internal Publications Industry Publications Functional Trade Publications Industry Data Firms University Sources Newspapers Newsletters Customer Feedback Telephone Surveys Networks Internal Reviews Professional Associations Special Industry Reports Seminars Industry Experts Company Watches Advertisements Original Research Supplier Feedback Inquiry Service World Wide Web

Benchmarking Compliance
Policy regarding benchmarking protocol should be communicated to all employees involved, prior to contacting external organizations. Guidelines should address the following areas: Misrepresentation do not misrepresent your identity in order to
gather information

Information requests a request should be made only for

information your organization would be willing to share with another company

Sensitive / proprietary

information

avoid

direct

benchmarking of sensitive or proprietary information

Confidentiality treat all information as confidential

Benchmarking Compliance
Avoiding inappropriate contacts with competitors. communication and

Never propose, enter, or engage in a discussion related to any agreements with a competitor to fix prices, in terms or conditions of sale, costs, profit margins, or other aspects of the competition.
Keep communications with competitors to a minimum make sure there is a legitimate business reason for all such communications

Benchmarking
(A) The process of identifying and learning from best practices
anywhere in the world is a powerful tool in the quest for continuous improvement.

(B) The systematic process of searching for best practices,

innovative ideas, and highly effective operating procedures that lead to superior performance. Learning by borrowing from the best and adapting their approaches to fit your own needs is the essence of benchmarking. It has broad applications in problem solving, planning, goal setting, process improvement, innovation, reengineering, and strategy setting. It is a fundamental business skill that supports quality excellence.

Best Practices
Enablers - the Means to the Ends
SOFT
Training Communication Empowerment Attitude Management Involvement

MEDIUM
Goals & Objectives Sequence Controls Measures Policies & Procedures

HARD
Plant Suppliers Money Technology Equipment

Benchmarks & Benchmarking: Managing Change

Best Practices Benchmarking
can be described as the process of seeking out and studying the best internal and external practices that produce superior performance. Dont reinvent what others have learned to do better! Borrow shamelessly! Adopt, adapt, advance! Imitate creatively! Adapt innovatively!

Process Benchmarking
Process benchmarking focuses on discrete work processes and operating systems, such as the customer complaint process, the order-and-fulfillment process, or the strategic planning process. Process benchmarking seeks to identify the most effective operating practices from many companies that perform similar work functions. Its power lies in its ability to produce bottom-line results. If an organization improves a core process, for instance, it can then quickly deliver process improvement

Performance Benchmarking
Performance benchmarking enables managers to assess their competitive positions through product and service comparisons. Performance benchmarking usually focuses on elements of price, technical quality, ancillary product or service features, speed, reliability, and other performance characteristics. Reverse engineering, direct product or service comparisons, and analysis of operating statistics are the primary techniques applied during performance benchmarking.

Strategic Benchmarking
Strategic benchmarking examines how companies compete and is seldom industry-focused. It roves across industries seeking to identify the winning strategies that have enable high-performing companies to be successful in their marketplaces.
Strategic benchmarking influences the longer-term competitive patterns of a company. Consequently, the benefits may accrue slowly.

Benchmarking

Code of Conduct

Benchmarking Whys & How's

Benchmarking represents a versatile process management tool that helps organizations identify and understand what constitutes best operating practices. Benchmarks are the operating statistics or measures that define the achievement level of any given practice or system. These are not in and of themselves enough since they provide no insight into the root causes of performance differences. A flexible set of benchmarks reflects full process or system capabilities. Performance indicators may include dimensions such as cost, productivity, cycle time, yields, error rates, waste and turnover.

Range of Benchmarks
FOCUS STRATEGIC * Product / Services * Business Processes * Business Function Benchmark Levels Type Improvement Benefit 30%

Best-in-World

Generic Processes

Best-in-Country 6 PERFORMANCE Industry Leader 5 * Customer Satisfaction Norm 4 * Output : Standard 3 --Products & Services PROCESS Best-in-Company 2 * Practices & Capability * Inputs: -- Material/Supplier Baseline 1

Functional Areas Direct Competitor

30%-40% 15%-20%

Internal

15%

Benchmarking Architecture

Performance Measures

Cycle Time

Customer Satisfaction

Cashflow

Debt

Profitability
Training Employee Retention Referral Rates Customer Retention

Costs Capital
Expenditures

Assets

Quality
Liabilities Sales

Defect Rates

Dashboard of New Performance

Designing Successful Benchmarks:

Effective Performance Benchmarks Reflect the Most Important Operating Dimensions of a Business Process, System, or Function.

MEASUREMENT FOCUS
Determine where in a work area or process that value for the customer is created; Determine where value is detracted through high costs, errors, rework, or accidents; and Target benchmarks in areas where performance diverges from designated standards, or where variation above and below standards is greatest.

MEASUREMENT PERSPECTIVE
Leading indicators foreshadow or anticipate future system outcomes. Leading indicators are thus proactive or preventative. Lagging indicators such as traditional financial measures are reactive or descriptive of the actual results of a system or process in a given time period. Traditional companies employ lagging indicators while high-performance companies embrace both types since leading indicators intervene upstream.

Designing Successful Benchmarks

MEASUREMENT CONTROL
People are always the principal factor affecting the degree of measurement control.
Managers fail at performance improvement when they evaluate individual or system performance using benchmark measures that are uncontrollable by the people overseeing the process. Therefore benchmarks that are designed for performance improvement must be crafted to reflect the individual level of authority, responsibility, and skills of those people expected to work with the benchmarks.

DATA COLLECTION

After defining performance measures, managers must be able to readily collect the
data from which performance benchmarks are constructed. Many organizations develop interesting performance measures only to discover that they currently do not collect the required information and do not have the resources to do so. The best performance benchmarks can be collected without excessive investment of time, systems, staff, or capital.

A Benchmark Design Architecture

The first step in designing a performance

benchmark system is to create measures that will enable management to achieve the organizations strategic objectives.

The second step in designing a benchmark

architecture requires managers to create an agreed upon vocabulary describing performance measurement in your organization.

The third step is to develop plans to collect,

process, and analyze the performance measures.

Designing a Benchmark Architecture:

Ten Generic Benchmark Categories

Customer-service performance; Product / service performance; Core business process performance; Support processes and services performance; Employee performance; Supplier performance; Technology performance; New product/service development and innovation performance; Cost performance; Financial performance.

Customer-Service Performance Measures:

The Best Customer-Related Measures Come from Objective and Valid Data

Collected Directly from Customers

Customer-service performance measures typically probe

organizational performance in the following areas:

Overall Customer Satisfaction with Products & Services; Customer Evaluations of Sales & Service Representatives; Customer Assessments of Your Organizations Understanding of Customer Needs; Customer Ratings of How Clearly Your Organization Communicates Cost Information & How Well the Organization Suggests Customer Solutions Customer Appraisals of Delivery Timeliness; Customer Impressions About the Usefulness of Your Organizations Product & Service Documentation; Customer Feelings Concerning How Easy it is to Conduct Business with Your Organization;

The Value Customers Place on Your Organizations Products & Services.

Product/Service Performance Measures

Product & Service Performance Benchmarks Include Measures of:
Accuracy, Reliability, Timeliness, Order Ease, Delivery, Packaging, Ease of Assembly & Use, Documentation, Billing, After-Sales Service, and Effective Complaint Management.

These May Also Include:

Warranty Exchanges and Returns, Unit Productivity & Cost, Cycle Time for Key Intervals, and Market Share.

Business Process Performance Measures

A simple process analysis model can help identify your organizations most important workflows. This model reveals that all work can be viewed in four sequential stages:
1. Inputs (including those from both employees & suppliers); 2. Processes (including internal operations & support services); 3. Outputs (your organizations products, services, and documentation); and 4. Customer Satisfaction.

In the following graphic (the input-output process model) we begin with inputs that can be tangible (such as supplies, raw materials, and component products) or intangible (such as information) which are delivered to the work process, which transforms them into some final output which might be a product or service. The goal of the output is to create satisfied and loyal customers.

Inputs

Processing

Outputs

Customers

People Raw Materials

Design of Products/ Services

Products

Components
Customer Requirements

Production of Products
Performance of Services

Customer Needs Satisfied Customer Problems Solved Customer Requirements Met

Services
Documentation

Results

Capital

Delivery of Products/ Services

Input-Output Process Model

Common Performance Measures of the Input-Output Process Analysis Model

Enhanced customer value - often observed through added product features or reduced costs;
Production costs, frequently described as cost per hundred, thousand, or million; Responsiveness and/or process cycle time; Defect, error, waste, problem, or failure rates, often formatted as defects per 1000 or million output units; Productivity & resource utilization, often reflected in transactions per person, inventory turn rates, or projects operating within budget; Public safety and / or legal responsibilities, sometimes observed in accident rates, employee absentee rates, regulatory citations, or litigation rates.

IBM
Marketing Information Capture; Marketing Selection; Requirements; Hardware/Software Development;

Xerox
Customer Engagement; Inventory Mgt. & Logistics; Product Design / Engineering; Product Maintenance;

British Telecom
Direct Business; Plan Business; Develop Processes; Manage Process Operations;

Service Development;
Production;
Customer Fulfillment/ Relationship;

Technology Maintenance;
Production & Operations Mgt. Marketing Management; Supplier Management; Information Management; Business Management; Human Resources Management; Leased & Capital Asset Mgt. Legal; Financial Management.

Provide Personnel Support;

Market Products & Services; Provide Customer Service; Manage Products & Services; Provide Consultancy Services; Plan the Network; Operate the Network; Provide Support Services; Manage Information Resource; Manage Finance; Provide Technical R&D

Service Customer Feedback; Marketing; Solution Integration; Financial Analysis; Plan Integration; Accounting; Human Resources IT Infrastructure

Examples of Key Business Processes

Support Processes / Services Performance Measures

Support services are activities and operations that enable your organizations core production and delivery processes. They include functions such as finance, software services, marketing, public relations, information services, purchasing, legal services, and facilities management. Examples for various areas follow:
Accounting
Percentage of Late Payments Time to Respond to Customer Requests Number of Billing Errors Number of Payroll Errors

Information Services
Number of Errors / Code Line

Marketing
Accuracy of Forecast Assumptions
Number of Incorrect Order Entries

Percent of Reports Received on Schedule

Number of Rewrites Number of Errors Found After System Accepted by Customer

Overstocked Field Supplies

Contact Errors

Purchasing
Purchase Order Errors Downtime Due to Shortages Excess Inventory Cycle Time (from start of purchase to receipt in-house)

Product Engineering
Project Completion Cycle Times Engineering Changes/ Document Number of Errors Found During Design Review Number of Errors Found in Design Evaluation

Quality Control
Percentage of Lots Rejected in Error Number of Engineering Changes Detected After Design Review Errors in Reports Cycle Time for Corrective Action

Employee Performance Measures

Employee Performance Benchmarks Cover a Wide Range of Employee Activities that May Include: Employee Development; Employee Empowerment; Employee Recruitment; Employee Turnover; Employee Safety/Accidents; Employee Morale; Employee Promotion; Employee Succession Planning. Employee Education; Employee Recognition; Employee Absenteeism; Employee Grievances; Employee Involvement; Employee Performance Appraisal;

Technology & Innovation Related Performance Measures

Technology-related measures reflect the productivity, deployment, and effective use of computers and other technology in an organization. Measure range broadly from processing speeds, deployment percentages, network down time and error rates. In turn, innovation-related performance indicators reflect issues such as product development times, employees suggestion rates, new product sales as a percent of total sales, and process improvement rates.

Supplier Performance Measures

Supplier performance measures help an organization qualify or certify the vendors with which it will work. These benchmarks then help the organization monitor and manage on-going supplier performance. Supplier performance metrics often include measures of cost, quality, reliability, speed or responsiveness, agreedupon service levels, and product specifications.

Cost Performance Measures

Cost performance measures are broad and flexible. They include balance sheet liability requirements and information drawn from cost centers throughout the organization. Companies can develop useful benchmarks by producing cost ratios for specific products, services, organizational units, processing steps, inputs, and labor. A mortgage company, for instance, might use such measures as cost per loan application, cost per loan processing,human resources cost per loan, data processing costs per 100 bills, and service cost per loan.

Financial Performance Measures

Financial measure include performance indicators required by stock exchanges, security analysts, public accounting firms, regulatory agencies, and other organizations that may oversee reporting standards in your organizations industry. Many of these measures make up the items on income statements, balance sheets, and cash flow statements, including measures such as revenue, gross profit, operating income, net income, earning per share, longterm debt, book value, cash flow, debt/equity ratio, days/ receivables ratio, current ratio, and so on.

Benchmarking Critical Success Factors

Adopt,
Adapt, and Advance: A well-designed performance measurement and benchmark system is essential, but there are other critical success factors: Senior management support; Benchmarking training for the project team; Useful information technology systems; Cultural practices that encourage learning; Resource dedication - especially in the form of time, funding, and useful equipment.

A Generic Benchmarking Process: The Simple, Consensus Model

From the Strategic Planning Institutes (SPI) Council on Benchmarking has developed the following model:
1. Launch 2. Organize 3. Reach Out 4. Assimilate 5. Act

Attributes of Benchmarking Studies: Success vs. Failure

Success
Process Owner Involvement Customer Driven Objectives Linked to Strategic Plan

Failure
Sponsorship Uncertain Amorphous Objectives No Strategic Integration Performance Metrics Only Hard Data Only Arbitrary / Casual Approach Incremental / No Change Keep Going and Going and .. A la carte Program

Best Practices & Enablers

Consider Cultural Attributes Disciplined Methodology Quantum Change

Clear Project Life Cycle

Integrated with Existing Quality Efforts

ManageMents BenchMarking Challenge

Commit required resources to key projects; Provide focused training / facilitation to project
participants;

Proactively manage the direction and momentum of

benchmarking within the organization;

Create visibility of the benchmarking process;

Recognize benchmarking team efforts.