Benchmarking
Farhad Zargari, MD, PhD
[email protected]
July 2010
Outline
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Dr. Zargari
Benchmarking Definition
Benchmarking Background
Why Benchmarking?
Benchmarking, Dimensions & Types
Survey
Benchmarking Process
Benchmarking Essentials
Benchmarking Costs
Benchmarking Ethics
Benchmarking Pitfalls
References
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What is Benchmarking?
 Benchmarking is the process of improving
performance by continuously identifying,
understanding, and adapting outstanding practices
found inside and outside the organization.
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What is Benchmarking?
 Benchmarking is the process of comparing one's
business processes and performance metrics to
industry bests and/or best practices from other
industries.
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Why are others better ?
How are others better ?
What can we learn ?
How can we catch up ?
How can we become the best in our sector ?
What is Benchmarking?
 Benchmarking is an improvement process that is
used to identify best practice within a peer group
and facilitate it’s incorporation into your
organization. Studying best practices provides the
greatest opportunity for gaining a strategic,
operational, and financial advantage.
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What is Benchmarking?
 Benchmarking is the continuous search for and
adaptation of significantly better practices that
leads to superior performance by investigating the
performance and practices of other organizations
(benchmark partners). In addition, it can create a
culture to facilitate the change process.
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What is Benchmarking?
 Best practice refers to techniques, methods or
processes that are more effective at delivering a
desired outcome.Japanese Word “DANTOTSU”
means striving to be the best of the best, captures
the essence of Benchmarking.
 Incorporating best practice into your organization
can lead to greater efficiency and effectiveness
and a happier customer.
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What is Benchmarking?
 Benchmarking means to measure the best
practices of leading businesses, and learn and
adapt them for use in your business.
Benchmarking is
Making Best Practices Your Daily
Practice.
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What is Benchmarking? (J. McEvilly-2008)
 Benchmarking has three main features:
Continuous method of measuring and
comparing a firm’s business processes
against those of another firm.
Discover performance gaps between
one’s own processes and those of
leading firms.
Incorporate leading firm’s processes
into one’s own strategy to fill the
gaps and improve performance.
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What is Benchmarking?
 “An organization’s ability to evaluate its practices
against specific business strategies and objectives is
critical to leveraging its knowledge capital” (Harper,
1996). Information is there for organizations and it
should be evaluated, used, and shared. This is one
of the primary goals of benchmarking.
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Operational Definition of Benchmarking
Comparing business processes,
not only performance measures
A structured technique
Benchmarking is a technique of identifying,
understanding and adapting superior practices
from organizations locally and world wide to
improve performance and achieve
priority business results.
Learn from others
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External focus
Improvement, not evaluation
What is Benchmarking?
 Benchmarking goes beyond comparisons with
competitors to understanding the practices that lie
behind the performance gaps. More and more
organizations are realizing how much more can be
achieved if there is more collaboration between
them and leaders in an industry.
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What is Benchmarking?
 Benchmarking is not a method for 'copying' the
practices of competitors, but a way of seeking
superior process performance by looking outside
the industry.
When Benchmarking a System,
Adapt What You Find,
Don’t Just Copy It
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What is Benchmarking?
Benchmarking = Copying
 Conditions are never identical
 You can pick up critical variables and apply them …
 Create a system – a comprehensive set of
reinforcing practices that are responsible for
success
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What is Benchmarking?
 Benchmarking is not just making changes and
improvements for the sake of making changes,
benchmarking is about adding value.
Benchmarking makes it possible to gain
competitive superiority rather than competitive
parity.
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What is Benchmarking?
 Benchmarking enables organizations to assess
their own performance, compare it with that of
others, analyse the gap between the two, identify
and make fundamental changes in specific areas,
in order to improve and enhance their own
performance.
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What is Benchmarking?
 Benchmarking is a tool for continuous
improvement of the management of processes in
companies to help them to gain world leadership.
Benchmark Purpose and Quality Maturity
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I
II
III
Learning
from
success
Borrowing Best-inideas
firm
IV
V
Beating
Best-inindustry
class
standards
Quality
Maturity
VI
National
leadership
What is Benchmarking?
 In Japan, benchmarking is a part of their
manager's job descriptions (Boxwell, 1994). This is
one of the ways that the Japanese are able to keep
up with and surpass others in industries such as
automobiles, motorcycles, electronics, etc.
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What is Benchmarking?
 Benchmarking is critical to formulating a
knowledge-based plan of action to achieve
objectives. A benchmark is a standard that
provides a measuring-stick for relative
performance.
US Department of Energy
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Benchmark
 A benchmark is an organization recognized for its
exemplary operational performance.
 There are many benchmarks in the world including:
Toyota for
Processes
Intel for
Design
Motorola for
Training
Scandinavian Airlines for
Service
Honda for
Rapid product development
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Benchmarking and Industries
 Relationship between benchmarking and industry
type (According to one research done in the UK ):
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Benchmarking and Organization Size
 Moreover a tendency of benchmarking activity is a
function of size. A larger organization is more
likely to be benchmarking than a smaller one.
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Actual Benchmarking Examples
Initiator
Improvement Sought
Target Firm
Southwest Airlines
Faster plane turnaround time
Indy 500 pit crews
Xerox
Warehousing operations
L. L. Bean
IBM
Employee theft reduction
Las Vegas Casinos
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American Productivity and Quality Center-1988
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What is Benchmarking?
 At its simplest, benchmarking means:
"Improving ourselves by learning
from others."
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Background of Benchmarking
 The term benchmarking was first used by cobblers
to measure people's feet for shoes. They would
place someone's foot on a "bench" and mark it out
to make the pattern for the shoes.
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Background of Benchmarking
 Traditionally, the organizations used to enhance
their products and performance by focusing on their
internal functional activities (Kolarik, 1995). The
organization, for example, may use techniques such
as Quality Function Deployment to achieve their
customer satisfaction.
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Background of Benchmarking
 However, these traditional performance
improvement trends seem not to be sufficient for
the highly competitive markets (Juran, 1993). A
significant technique facilitating improvement of
organizational performance at a competitive
environment is benchmarking. (Juran, 1993).
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Background of Benchmarking
 In other words external environment and market
conditions change rapidly; goal setting which is
internally focused can’t be true reflection of
customer’s expectations.
In-ward
Vision
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Out-Ward
Vision
Background of Benchmarking
 Customers’ expectations are highly liquid and are
driven by standards set by best performer. Any
product or service just below these standards may
not catch the eyes of customer.
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Continuous and Breakthrough Improvement
Time
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Background of Benchmarking
 Benchmarking was originally defined by
D.T. Kearns, the CEO of Xerox Corporation, in
1981 as the continuous process of measuring
products, services, and practices against the
toughest competitors or non-competitors who is
the leader in their industry (Kolarik, 1995).
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Why Benchmarking?
 Survival lies in emulating best and not in lagging
behind. Bench marking is time and cost efficient
because it involves imitation and adaptation
rather than pure invention. Prevents the “Reinventing the wheel”.
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Why Benchmarking?
 Benchmarking gives us the chance of gaining:
 Better Awareness of Ourselves (Us)
 What we are doing
 How we are doing it
 How well we are doing it
 Better Awareness of the Best (Them)
 What they are doing
 How they are doing it
 How well they are doing it
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Why Benchmarking
Performance
Improvement
.
Meeting
Quality
Standards
Innovation
In
Management
Methods
Creative
Thinking
.
Benchmarking
.
Cope with
Competitive
Markets
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Keep Pace with
Science and
Technology
Changes
Meeting
Customers
Expectations
.
Three Major Benefits of Benchmarking
Product and Process Improvement
Cost Reduction
Competitive Strategy
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Product and Process Improvement
 In general, by implementing benchmarking
activity, organizations can improve their operation
process (Slack et al, 2001). For instance, South
African Breweries plc had encountered the
problem of poor employee skill, which is a
significant difficulty to implement the world-class
processes. As such, they decided to benchmark
strategy from an organization in Geneva. They,
consequently, attained the solution (Slack et al,
2001).
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Cost Reduction
 Benchmarking facilitates a reduction of operation
costs (Delpachitra et al, 2002). For example,
benchmarking helped Australian Financial
Institutes to reduce operation costs by
outsourcing some operation and alternating
distribution channels (Delpachitra et al, 2002).
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Competitive Strategy
 The most significant benefit from benchmarking is
that it helps the organization planning and
implementing competitive strategies (Kolarik,
1995). In other words, as benchmarking provides
an ability to compare and learn from the best
practices in any particular industry, organizations
can develop their system to achieve competitive
advantages or eliminate their competitive
disadvantages.
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Competitive Strategy
 Build core competencies that will help to sustain
competitive advantage
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Access to a variety of markets
Perceived benefit of product or service will increase
Product or service is hard to imitate
Low-cost leader
 Target specific shift in strategy
 Entering new markets
 Developing new products
 To create a firm more adaptable to change
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Why Benchmarking?
Benchmarking stimulates seeking new ways of doing things
and promotes a culture that is receptive to fresh approaches
and ideas.
Benchmarking provides opportunities for staff to learn new
skills and be involved in the transformation process from the
outset.
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Why Benchmarking?
It is an effective ‘wake-up call’ and helps to make a strong
case for change.
Offers practical ways in which step changes in performance
can be achieved by learning from others who have already
undertaken comparable changes.
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Benchmarking Becoming More Common
 There are three reasons that benchmarking is
becoming more commonly used in industry
(Boxwell, 1994).
 Benchmarking is a more efficient way to make
improvements. Managers can eliminate trials and
errors.
 Benchmarking speeds up organization’s ability to make
improvements. Today, time is of the essence.
 Benchmarking has the ability to bring your
performance up as a whole significantly.
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Why Benchmarking?
Those who benchmark do not
have to reinvent the wheel
(Parker, 1996).
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Dimensions of Benchmarking
 Benchmarking
encompasses Total
Quality aspects of
the organization
leading to Business
Excellence:
Vision and
Mission
.
Leadership
Style
Management
Systems
.
Benchmarking
Employee
Behavior
.
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Organizational
Structure
.
What to Benchmark?
 In practice, selecting the appropriate activity to
benchmark is significant to an effectiveness of
benchmarking (Peppard, 1999). As noted by Porter
(1985), the process or activities in value chain,
which are primary activities (inbound and
outbound logistics, operations, marketing and
sales, and service) and support activities (firm
infrastructure, human resource management,
technology development and procurement)
should be considered for benchmarking.
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Types of Benchmarking
 On the basis of “What” is being compared with
other organizations and “Who” is being compared
with our organization, we can classify
benchmarking.
“What” is being
compared with
other
organizations
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vs.
Who” is being
compared with
our organization
Types of Benchmarking
 On the basis of “What” is being compared with
other organizations we have four main types.
These four major types of benchmarking are
evolutionary beginning with product, through to
functional (performance), process and strategic
benchmarking.
Process
Performance
Product
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Strategic
Types of Benchmarking
 On the basis of “Who” is being compared with our
organization, we have these categories:
Best of the Best
Best in Class
International
Generic
Internal vs. External
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1-Product Benchmarking
 The process of designing new products or
upgrades to current ones. This process can
sometimes involve reverse engineering which is
taking apart competitors products to find
strengths and weaknesses.
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1-Product Benchmarking
 Many firms perform product benchmarking when
designing new products or upgrades to current
products. Providing an external perspective on
opportunities to improve products, technology,
manufacturing and support processes, the product
development process, and engineering practices
are core activities of product benchmarking.
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2-Performance Benchmarking
 Performance benchmarking focuses on assessing
competitive positions through comparing the
products and services of other competitors. When
dealing with performance benchmarking,
organizations want to look at where their product
or services are in relation to competitors on the
basis of things such as reliability, quality, speed,
and other product or service characteristics.
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2-Performance Benchmarking
 Assessing relative level of performance in key
areas or activities in comparison with others in the
same sector and finding ways of closing gaps in
performance.
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3-Process Benchmarking
 Process benchmarking focuses on the day-to-day
operations of the organization. It is the task of
improving the way processes performed every
day. Some examples of work processes that could
utilize process benchmarking are the customer
complaint process, the billing process, the order
fulfillment process, and the recruitment process
(Bogan, 1994).
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3-Process Benchmarking
 “Process Benchmarking" is generally higher-level
and less number-intensive than metrics.
 Demonstrate how top performing companies
accomplish the specific process in question.
 Takes form of research, surveys/interviews, and site
visits.
 By identifying how others perform the same functional
task or objective, firms gain insight and ideas they may
not otherwise achieve.
 A true value-added feature of benchmarking
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3-Process Benchmarking
 Process benchmarking - the initiating firm focuses
its observation and investigation of business
processes with a goal of identifying and observing
the best practices from one or more benchmark
firms. Activity analysis will be required where the
objective is to benchmark cost and efficiency;
increasingly applied to back-office processes
where outsourcing may be a consideration.
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3-Process Benchmarking
 Wisdom from “Texas Instruments”:
“Unless you change the process,
why would you expect the
results to change”
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3-Process Benchmarking
 By process benchmarking companies achieve
improvements in key processes to obtain quick
benefits. This provides an analysis of best practice
processes and functions irrespective of industry or
sector.
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4-Strategic Benchmarking
 Strategic benchmarking deals with top
management. It deals with long term results.
Strategic benchmarking focuses on how
companies compete. This form of benchmarking
looks at what strategies the organizations are
using to make them successful. This is the type of
benchmarking technique that most Japanese firms
use (Bogan, 1994). This is due to the fact that the
Japanese focus on long term results.
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4-Strategic Benchmarking
 This is concerned with comparing different
companies' strategies and assessing the success of
those strategies in the marketplace. Analyzes the
strategies with particular reference to:
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strategic intent
core competencies
process capability
product line
strategic alliances
technology portfolio
4-Strategic Benchmarking
 Strategic benchmarking is a proactive analysis of
emerging trends and options in different markets,
processes, technologies and distributions which
could significantly affect the strategic direction of
economies. It is the broadest form of
benchmarking and involves observing how others
compete. This type is usually not industry specific,
meaning it is best to look at other industries.
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1-Internal Benchmarking
 This refers to the analysis and comparison of one
or more units within the same organization. It is
often the case when organizations have an inhouse best practice area.
Sharing opinions
between
departments within
the same
organization.
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Advantage:
Easier to implement
Easier to access data
Disadvantage:
External ideas blocked
1-External Benchmarking
 Where examples of good practices can be found in
other organizations and there is a lack of good
practices within internal business units.
Comparison with external organizations leads to
discovery of new ideas, methods, products and
services.
Advantage:
The gap between
internal and external
practices displays the
way where to change
and if there is any need
to change.
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Helps to measure one’s own
performance
Helps to search for best practices
Disadvantage:
Takes time
Requires support
Legal/ethical issues
Industrial espionage
2-Generic Benchmarking
 Comparisons of business process or functions that
are very similar, regardless of industry.
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3-Best-in-class Benchmarking
 Best-In-Class
 Generally, initiator firms will choose to benchmark the
best-in-class.
 Best-in-class refers to those firms or organizations that
have been recognized as the best in an industry based
on some criterion.
 Objective
 The objective of best-in-class is to provide a basis for
continual improvement.
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4-Best of the best Benchmarking
 Best-of-the-Best
 After becoming a best-in-class firm, it may be difficult
to gain new insight and information from direct
competitors.
 Therefore, the next level of improvement is called
best-of-the best or best-in-the-world.
Don’t limit your effort to players
inside the industry only!
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Types of Benchmarking
 There are several other classifications for
benchmarking, based on partner type, adoption
level and target process, etc. Following are the
most used types:
 Internal
 External
 Competitive
 Functional
 Generic
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1-Competitive Benchmarking
 Competitive benchmarking is the most difficult
type of benchmarking to practice. For obvious
reasons, organizations are not interested in
helping a competitor by sharing information. This
form of benchmarking is measuring the
performance, products, and services of an
organization against its direct or indirect
competitors in its own industry. Competitive
benchmarking starts as basic reverse engineering
and then expands into benchmarking.
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1-Competitive Benchmarking
 Competitive benchmarking is an analysis of
strategies, processes and practices with
competitors and companies in the same industry.
Therefore, it is industry or business type specific.
It is especially beneficial to organizations
managing a specialized type of operation.
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1-Competitive Benchmarking
 Competitive Benchmarking is the continuous
measurement of the company’s products,
services, processes and practices against the
standards of best competitors and other
companies who are recognized as leaders. It is also
important to remember when using competitive
benchmarking that the goal is to focus on your
direct competitors and not the industry as a
whole.
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2-Functional Benchmarking
 Functional benchmarking - a company will focus its
benchmarking on a single function to improve the
operation of that particular function. Complex
functions such as Human Resources, Finance and
Accounting and Information and Communication
Technology are unlikely to be directly comparable
in cost and efficiency terms and may need to be
disaggregated into processes to make valid
comparison.
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2-Functional Benchmarking
 Comparative research to seek world-class
excellence by comparing business performance
not only against competitors but also against the
best businesses operating in a different industry.
Advantage:
Discovering innovative
practices
Comparing functions
Disadvantage:
Not suitable for every
organization or every function
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3-Collaborative Benchmarking
 Benchmarking, originally described as a formal
process by Rank Xerox, is usually carried out by
individual companies. Sometimes it may be carried
out collaboratively by groups of companies (e.g.
subsidiaries of a multinational in different
countries). One example is that of the Dutch
municipally-owned water supply companies,
which have carried out a voluntary collaborative
benchmarking process since 1997 through their
industry association.
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3-Collaborative Benchmarking
 With collaborative benchmarking, information is
shared between groups of firms. It is a
brainstorming session among organizations. It is
important to realize that not all collaborative
efforts are considered benchmarking. It is
sometimes called “data sharing."
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4-Financial Benchmarking
 Performing a financial analysis and comparing the
results in an effort to assess your overall
competitiveness and productivity.
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Benchmarking Methodology
Look for Benchmarking Opportunities Everywhere
Best Practice
Overlap
Competitive
• Industry leaders
• Top performers with
similar operating
characteristics
Functional
• Top performers
regardless of industry
• Aggressive innovators
utilizing new
technology
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Internal
• Top performers
within company
• Top facilities
within company
Commonly Benchmarked Performance Measures
Financial Ratios
Productivity Ratios
Customer-related Results
Operating Results
Human Resource Measures
Quality Measures
Market Share Data
Structural Measures
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Commonly Benchmarked Performance Measures
Financial Ratios: Such as ROA or ROI are
probably the easiest to obtain and
compare.
Productivity Ratios: Are useful in
measuring the extent to which a firm
effectively uses the scarce resources that
are available to it.
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Commonly Benchmarked Performance Measures
Customer-related Results: Include
customer satisfaction and comparisons of
customer satisfaction relative to
competitors.
Operating Results: Might include cycle
times, waste reduction measures, valueadded measures, and lead time.
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Commonly Benchmarked Performance Measures
Human Resource Measures: May include
employee satisfaction measures, training
expenditures, turnover, and absenteeism.
Quality Measures: These can include
conformance-based quality information
such as reject rates, capability information,
performance information, or other
measures.
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Commonly Benchmarked Performance Measures
Market Share Data: Includes shares in the
different markets served by the firm.
Structural Measures: Include objectives,
policies, and procedures followed by a
firm.
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Survey (Slide 1 of 3)
 In 2008, a comprehensive survey on benchmarking
was commissioned by The Global Benchmarking
Network, a network of benchmarking centers
representing 22 countries. Over 450 organizations
responded from over 40 countries. The results
showed that:
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Survey (Slide 2 of 3)
 Mission and Vision Statements and Customer
(Client) Surveys are the most used (by 77% of
organizations of 20 improvement tools, followed
by SWOT analysis(72%), and Informal
Benchmarking (68%). Performance Benchmarking
was used by (49%) and Best Practice
Benchmarking by (39%).
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Survey (Slide 3 of 3)
 The tools that are likely to increase in popularity
over the next three years are Performance
Benchmarking, Informal Benchmarking, SWOT,
and Best Practice Benchmarking. Over 60% of
organizations that are not currently using these
tools indicated they are likely to use them in the
next three years.
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Top-10 Benchmarked Business Processes
Business Process
EMPLOYEE RECOGNITION
PROCESS IMPROVEMENT MANAGEMENT
PROCUREMENT PURCHASING
MANAGEMENT OPERATIONS POLICY LEADERSHIP
BENCHMARKING
EMPLOYEE DEVELOPMENT TRAINING
MARKETING
ASSET MANAGEMENT
BALANCED SCORECARD
CORPORATE GOVERNANCE
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Ranking
1
2
3
4
5
6
7
8
9
10
TOP-10 Benchmarking Organizations
 The following is a ranking of organizations that are
heavily engaged in benchmarking. These
organizations have implemented internal
benchmarking methodologies to support their
entire organizations' efforts to improve their
products and services.
 These organizations are excellent role models for
you to learn how to deploy benchmarking
throughout your workgroup, department, division
or entire organization. They are leaders!
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TOP-10 Benchmarking Organizations
Organization
Ranking
Xerox
1
U.S. Army
2
Corning
3
Abu Dhabi Food Control Authority
4
Internal Revenue Service
5
United Technologies
6
DynMcDermott
7
Dubai Municipality
8
Dubai Chamber of Commerce and Industry
9
Allergan
10
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Benchmarking in Business Excellence
Model
Vision
Mission
Objectives
Areas to be Addressed
Measurement Indicators
QUALITY INITIATIVES
ISO
Benchmarking
Six Sigma
Kaizen
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KM
Quality Circles
Suggestion Schemes
BSC
5S
Professional Circles
Parties to Benchmarking Relationship
 There are two parties to each benchmarking
relationship: an initiator firm and a target firm.
 The initiator firm is the firm that initiates contact and
studies the other firm.
 The target firm is the firm that is being studied (also
called the benchmarking partner).
Initiator
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Target
Benchmarking Process
 There are various methods of benchmarking and a
variety of methodologic processes in
benchmarking mechanisms and implementation.
Some important organizations have developed
their own benchmarking process.
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General Benchmarking Process
Analyze
•Collect Data
•Establish the gap
•Identify process changes
•Target future goals
Plan
•Select Process
•Understand Process
•Select Partners
Act
•Communicate actions
•Develop improvement
plan
•Implement
•Review Progress
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A Benchmarking Process
1. IDENTIFY WHAT IS TO BE BENCHMARKED
PLANNING
3. DETERMINE DATA COLLECTION METHOD
AND COLLECT DATA
4. DETERMINE CURRENT PERFORMANCE "GAP"
ANALYSIS
5. PROJECT FUTURE PERFORMANCE LEVELS
INTEGRATION
6. COMMUNICATE BENCHMARK FINDINGS
AND GAIN ACCEPTANCE
7. ESTABLISH FUNCTIONAL GOALS
8. DEVELOP ACTION PLANS
ACTION
9. IMPLEMENT SPECIFIC ACTIONS AND
MONITOR PROGRESS
10. RECALIBRATE BENCHMARKS
MATURITY
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2. IDENTIFY COMPARATIVE COMPANIES
•LEADERSHIP POSITION ATTAINED
•PRACTICES FULLY INTEGRATED INTO PROCESS
Gap Analysis
 When done well, benchmarking prominently
reveals gaps between the performance of the
benchmarker and that of a “best practices” leader,
and that leads to developing sustainable
competitive advantage.
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Gap Analysis (Spider chart)
Total customer
satisfaction
Current
performance of the
host for variable ‘K’.
Best of the best
(current
performance of
the partner for
variable ‘A’.
Current performance of the host
Current performance of the partner
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Methodology of Benchmarking
AT&T
Vs
XEROX
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Xerox Experience-1 (Brogan, 1994)
 The Xerox of today is not the Xerox of the sixties and
seventies. During that time period the organization
experienced market erosion from competitors,
primarily Japanese. These competitors were
marketing higher quality products in the United States
at the same price or lower as Xerox. Xerox found that
the Japanese were able to assemble quality products
at a low price. This was hard for Xerox to grasp
because they were the first to develop the photocopy
and their name had come to be synonymous with
photocopies.
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Xerox Experience-2 (Brogan, 1994)
 How could the Japanese be beating them at their own
game? Xerox found that they had to regroup. In doing
this they made competitive benchmarking a
fundamental part of their operations. Xerox began to
study other organizations within and out of their
industry. By 1983, Xerox had bench marked more
than 230 process performance areas in their
operation. Identifying the best processes used by
others, Xerox adapted them for their own use. This is
how they regained their core competency and
strategic advantage in the photocopying industry.
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Xerox 12-Step Benchmarking Process-1
 Phase 1: Planning
 1. Identify what to benchmark;
 2. Identify comparative companies;
 3. Determine data collection method & collect data.
 Phase 2: Analysis
 4. Determine current performance gap;
 5. Project future performance levels.
 Phase 3: Integration
 6. Communicate finding and gain acceptance;
 7. Establish functional goals.
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Xerox 12-Step Benchmarking Process-2
 Phase 4: Action
 8. Develop action plans;
 9. Implement specific actions & monitor progress;
 10. Recalibrate benchmarks.
 Phase 5: Maturity
 11. Attain leadership position ;
 12. Fully integrate practices into processes.
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Benchmarking Process-APQC
 American Productivity & Quality Center defines
benchmarking process in four steps:




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Planning
Data collection
Analysis
Adapting & Improving
Benchmarking Process
 In benchmarking “metrics" give numerical
standards against which a company’s own
processes can be compared. Some examples of
metric benchmarks are:






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Finished-product first-pass yield of 97%
Scrap/rework less than 1% of sales
Cycle time less than 25 hours
Customer lead times less than 20 days
Productivity levels of $150,000 or more per employee
Plant-level ROA better than 15%
Benchmarking Process
 In benchmarking:
 Measure what’s needed, not what’s easy.
 Broad measures of performance fail to give you
actionable information.
 You don’t need a 1000 measures, just find the key
indicators that serve as critical factors.
 Finding balance is important..don’t let a nonbenchmarked metric go bad.
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Six Principles of Benchmarking
 Any acceptable benchmarking should have these
six features:






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Comprehensive
Credible
Comparative
Performance-oriented
Confidential
Continuous assessment
Benchmarking Process
 Why businesses are not willing to do multi-step
benchmarking?
 Takes too long often six to nine months
 Its costly
 The lessons learned may or may not get translated to
practice and improvement
Reports that get shelf space, not action
Cumbersome process to complete
Limits Flexibility - procedures oriented
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Creative Benchmarking*
 Creative Benchmarking:
 Start from the customers point of view
 List each step of the customers buying experience
 Next, determine which factors most influence
customers perception of value at each step
 Finally, identify companies that excel at each factor –
without regard to their industry!
* (Derived from the work of Dawn Lacobucci and Christie Nordhielm, Kellogg Graduate
School of Management)
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Fast-Cycle Benchmarking
 Fast-Cycle Benchmarking is:
 Less elaborate than traditional multi-step
 More tactical
 What do concrete trucks and pizza have in common?
 Useful to Identify specific operation problems or
opportunities
 Instead of copying from others, use the data to
stimulate generation of creative ideas
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Fast-Cycle Benchmarking
 Figure out what you are looking for and bring it in.
 Look for practices that can spark ideas, don’t just
replicate what you find.
 Figure out where benchmarking fits in your tool
chest, and make an informed decision about the
outcome you are really after.
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Fast-Cycle Benchmarking
 Benchmark companies roughly at your own level!
 College physics before high school math doesn’t
make any sense…
 Forget the world class company (unless you are
one!)..find a firm of similar size and situation as yours
 Benchmark companies with similar business needs
 Common concerns promote a more productive
exchange or transportability of the information learned
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Benchmarking Essentials
Top management support and guidance
Aligning benchmarking with the vision and mission
Thorough process mapping and documentation
Committed and creative benchmarking team
Selection of right benchmarking partner
Flexible mindset to accept change and findings
Integrating benchmarking with other improvement initiatives
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Benchmarking Essentials
Clearly defined purpose
Continual analysis & reassessment
Appropriate benchmarking methodology
Significance of results must be clear
Conclusions must be justified by the data
Investigation must be systematic
A high code of ethics is essential
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Benchmarking Essentials
Must establish & enforce milestones
Must report findings to senior management
Internal training on benchmarking for company personnel is
crucial
Professional benchmarking analysts should support studies
The process must be institutionalized
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Benchmarking Costs
 The three main types of costs in benchmarking
are:
Time
Costs
B
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Visit
Database
Costs
Costs
Benchmarking Costs
 Time Costs - Members of the benchmarking team
will be investing time in researching problems,
finding best practice companies to study, visits,
and implementation. This will take them away
from their regular tasks for part of each day so
additional staff might be required.
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Benchmarking Costs
 Visit Costs - This includes hotel rooms, travel costs,
meals, a token gift, and lost labor time.
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Benchmarking Costs
 Benchmarking Database Costs - Organizations that
institutionalize benchmarking into their daily
procedures find it is useful to create and maintain
a database of best practices and the companies
associated with each best practice now.
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Benchmarking Ethics
 Since the concept of benchmarking can lead to
unscrupulous and sometimes unethical behavior,
the SPI Council on Benchmarking and the
International Benchmarking Clearinghouse have
established a general code of conduct
(Thompson). The code is as follows:
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Benchmarking Code of Conduct
Do not ask competitors for sensitive information. Do not make them
feel that if the data is not shared the benchmarking process will end. If
you ask the company for sensitive and valuable information, be
prepared to give the same in return.
Use an ethical and unbiased third party such as an
ombudsman or legal advisor for direct competitor advice.
Treat any information obtained from a benchmarking partner as
privileged or “top secret” information. Don't give away any
information or potential trade secrets without permission.
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Benchmarking Code of Conduct
When benchmarking with competitors, set up certain rules that state that
things will not be discussed that give either company a competitive
advantage. Establish the purpose is for both parties to improve or gain
benefit. Costs should not be discussed.
Consult with a legal advisor if any information gathering
procedure is in doubt.
Do not misrepresent yourself or your organization as being
someone or something that you are not.
Show that you are committed to the effectiveness of the
process. And in doing so maintain a professional and
honest relationship with your benchmarking partners.
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Benchmarking Pitfalls
 Benchmarking is NOT:
 Tour visits to other competitors or organizations.
 Performance measurement, it’s part of benchmarking
process. i.e. competitive analysis.
 A cost-cutting exercise.
 Imitating others’ practices or processes, it’s “How to”
not “What is”.
 A public relations exercise.
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Benchmarking Pitfalls
 Failure to consider organizational cultures or
circumstances leads to a wrong direction.
 Insufficient preparation usually results in MBWAA
(management by wandering around aimlessly!).
 What are you trying to learn about?
 Why do you want to learn it?
 What will you do with it to make your processes better
once you have it?
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Benchmarking Pitfalls
Lack of sponsorship
Unengaged process owner
Notion that we are unique
Mission, goals, objectives Unconnected
Not relating benchmarking to other improvement initiatives
Not accepting findings
Time and resources overlooked
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Benchmarking Pitfalls
Fear of being seen as “copying”
Fear of losing competitive advantage by sharing
information
Benchmarking trap – benchmark that which is convenient,
but may not be important.
Excuses such as : We are too small, We are too busy, We are
too different, Nobody else does what we do, We do it
better than anyone else
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When not to Benchmark
Target is not critical to the core business functions
Customer’s requirement is not clear
Key stakeholders are not involved
Inadequate resources to carry through
No plan for implementing findings
Fear of sharing information with other organizations
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Specialized Organizations
 There are international organizations specialized
in benchmarking services, e.g.,




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Global Benchmarking Council
American Productivity and Quality Center
Asian Benchmarking Clearinghouse
Hong Kong Benchmarking Clearing house
Final Remarks
 Benchmarking does not come as a natural process
for many – competitiveness does, but not
benchmarking, because benchmarking requires a
team approach.
In Benchmarking The Key is to
“Adapt not Adopt” – Professor Deming
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Give
Benchmarking a
Chance It’s Worth It.
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REFERENCES
 Anderson, B. (1999), “Industrial benchmarking for competitive
advantage”, Human Systems Management, Vol. 18 No. 3.
 Bogan, C.E. and M.J English (1994), Benchmarking for Best Practices:
Winning Through Innovative Adoption, New York: McGraw-Hill.
 Boxwell, Robert (1994), Benchmarking for a Competitive Advantage,
McGraw Hill, 1994
 Delpachitra S. and D. Beal. (2002) “Process benchmarking: an
application to lending products”, Benchmarking: An International
Journal, Vol. 9, No. 4.
 Davies, A. J. and Ashok K. K. (1999), “Why British companies don’t do
effective benchmarking”, Integrated Manufacturing Systems, Vol. 10,
No.1.
 Graham, Anne (1997), “Association Publications: Benchmarking
Common Problems,” The Magazine for Magazine Management, v25,
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REFERENCES
 Harper, Kim (1996), “Benchmarking: International Clearinghouse
Plays Matchmaker for Companies That Want to Improve,” Arkansas
Business, vol.9, (1996).
 Hinton M. et al. (2000), “Best practice benchmarking in the UK”,
Benchmarking: An International Journal, Vol. 7, No. 1.
 Hurmelinna P. et al. (2002), “Attaining world-class R&D by
benchmarking buyersupplier relationships”, International Journal of
Production Economics, Vol. 80, No. 1.
 Juran, J.M. (1993), Quality planning and analysis: from product
development through use (Third Edition), United States of America:
McGraw-Hill, Inc.
 Keegan, R. (1988), “Benchmarking Facts: A European Perspective”,
Dublin: Oak TreePress
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REFERENCES
 Kolarik, W. J. (1995), Creating Quality: Concepts, Systems, Strategies,
and Tools (International Edition), Singapore: McGraw-Hill Book Co.
 Peppard, J. (1999), “Benchmarking, process re-engineering and
strategy: some focusing frameworks”, Human Systems Management,
Vol. 18 No. 3.
 Porter, M.E. (1985), “Competitive Strategy: Techniques for Analysing
Industries and Competitors”, Free Press, New York
 Ralston D. et al. (2001), “Process benchmarking as a market research
tool for strategic planning” Marketing Intelligence & Planning, Vol.
19, No. 4.
 http://www.ogc.gov.uk/documentation_and_templates_benchmarki
ng.asp
 http://www.ebenchmarking.com/
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REFERENCES
 http://www.nhsbenchmarking.nhs.uk/
 http://www.berr.gov.uk/dius/innovation/benchmarkinginnovation/index.html
 Benchmarking for Best Practices: Winning Through Innovative
Adaptation, Christopher Bogan and Michael English, McGraw Hill
 www.best-in-class.com – Bogan’s website
 The International Benchmarking Clearinghouse, www.apqc.org
 www.runzheimer.com
 The Business Gateway http://www.bgateway.com/index.asp
 David Stauffer, (2003) “Is Benchmarking Doing the Right Work?”,
Harvard Business School Publishing
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