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What is Competitive Benchmarking?

by David Hutchins, Chairman, David Hutchins Innovation Ltd


The term benchmarking is relatively new but the concept is as old as competition itself. Whether in industry, sport or in other aspects of our daily lives, we continually need to reference our own performance against others. All of us benchmark most of the time without realising it. At one time the concept was known as 'interfirm comparisons' because in an industrial sense, that is what it is. Women are probably more adept at benchmarking than men. Prior to the attendance at a function women will be very keen to know what other women will wear, what colours might they wear to avoid clashing etc. Industrially a business can live or die depending upon how well it benchmarks.

Attendance at a business convention is a graphic example of informal benchmarking. In its basic form, benchmarking is nothing other than a formalised way of learning from each other; and learning from each other is one of the primary objectives of such an event. Those who will be presenting their achievements know that the audience will constantly be comparing their work with that of the presenters themselves. In this case, the comparisons will be related to:

The quality and type of visual aids used, whether overhead, 35mm or even video The techniques they used in the project How the project was selected How many members there were in the team etc., etc.

Notice that these comparisons can be made irrespective of the type of work of the team presenting. Benchmarking need not be industry specific because the majority of processes in one organisation are the same as in others irrespective of industry, for example, financial management, HR, product development process, supply chain management, customer support etc. How a Quality Circle programme or customer support process is organised and how it conducts its affairs can be just as informative to someone in a bank, whether the example is from a business engaged in any industry, or from a team in the same industry. In fact in many cases it may be even more informative because people in different industries often do the same things but in different ways. Of course, the technical details of the project may not be relevant, but these are usually incidental to the real interests of Quality Circles, Customer care programmes etc. The convention participants will be more interested in how the circles operate and not the technical details of the projects they present. Questions relating to how a circle works are transferable from one industry to another and from one country to another. That is what makes the circles movement so vibrant. Each is engaged in the common purpose of striving for excellence. This example holds good for all other concepts or processes that are not industry specific - recruitment, marketing, personnel management, financial management, maintenance and so forth. These comparisons are the essence of benchmarking but the subject is much wider than its possible appeal simply to quality circles. In fact, the value of benchmarking is that its techniques can be applied at all levels of an organisation and particularly at the top. When it is used at that level, the participants will be concerned with two forms of benchmarking.

Competitive benchmarking World class benchmarking

Competitive benchmarking is where we wish to discover what our companys performance is compared with an immediate competitor. This can be across the entire spectrum of business comparitors, i.e., finance, products and services, organisation, technology, research and development, personnel policies, etc. World class benchmarking is where comparisons are made with organisations in different industries, with the object of being best in class for critically important activities which may influence market share, costs, employee motivation and effectiveness (i.e. accounts receivable, standard costing) etc.

The 'loose brick'.

Depending upon circumstances and market pressures, competitive benchmarking has always been conducted either formally or informally. What is perhaps very new to most is the concept of world class benchmarking. This has come about in recent years as a direct result of severe international pressure in the market place, and notably the emergence of firstly Japan and then other Asian and South East Asian industries. These posed a real threat to many American and European companies and world class benchmarking has developed as part of a counter to that threat. In Japan this agressive form of benchmarking is often referred to as the 'loose brick'. In the West it might be called 'looking for the Achilles heel'. A classic example of the use of the 'loose brick' concept was the competition between Rank Xerox and their Japanese counterparts such as Richoh, Canon, Panasonic etc. In 1980, Rank Xerox controlled almost 100 percent of the world market for plain paper copiers. By 1985, that market had plunged below 50 percent and was rapidly headed downward toward 40 percent. The same thing happened to Caterpillar at the hands of Komatsu. It also happened to the motorcycle industry in the 1960s and is still repeatedly happening in other industries. In the UK during 1973 there were about ten major manufacturers of television sets: McMichael, Sibell, Bush, Ultra, Decca, HMV etc. But one year later, only Ferguson remained and that was a special case. Sony, Hitachi, Toshiba, JVC, Panasonic and several others replaced local TV brands. The same has happened in a wide range of other industries and the impact on the automotive industry is well known. Prior to the realisation of the threat from the Far East, Western companies were largely complacent. Most of them had a good share of their respective markets, made good profits and could sell anything they could make. Unfortunately, when a company can sell everything it can make, there is the possibility that quality is not regarded as being important and it will not pay too much attention to its competitors. The situation now is that most of these companies are fighting for survival and as a result have woken up to the fact that they must do everything in their power to study their new competitors and to attempt to regain their lost status in the world markets. The modern approach to benchmarking is a direct result of this need. Interestingly, the same tools that are normally used in Quality Circles type activities or at Six Sigma Yellow Belt and Six Sigma Green Belt levels and some QFD tools can be used in benchmarking, in particular the affinity diagram and the tree diagram methods. These tools are especially useful when deciding what to benchmark.

Benchmarking Techniques
Deciding what to benchmark depends on who intends to do the benchmarking. For this example, we will take the case of the directors of a company. Later we will see how a quality circle might use this approach to plan a benchmarking project of its own. Before deciding what to benchmark, it is important to ask the question why benchmark? In this case, the answer will usually be concerned with ensuring the optimum performance of the organisation. This could mean anything so we must find a way of being more specific. A good approach would be to bring all of the top people together and ask them how they would like to see the business at some particular time in the future, say three years from now. In their minds, each of them is likely to have different thoughts about this. For example, the Research and Development Director will dream of the company being perceived to be innovative, the Finance Director will think of profitability and growth, the Personnel Director will think about people policies and so forth. Of course, they will not just be concerned with their own disciplines, they will also have thoughts about others as well. Also, it is unlikely that their ideas will be in conflict with each other, so it would be as well if we could find a way of getting the ideas out of their heads and onto a piece of paper, so that we can look at them and organise them into related groups. The affinity diagram method is ideal for this purpose and will result in a number of short sentences or statements similar to those shown below. OUR MISSION HELPING TO IMPROVE BUSINESS PERFORMANCE THROUGH QUALITY AND PARTNERSHIP

Exceed customer expectations by establishing a reputation for understanding and meeting their business needs.

Develop the knowledge, skills and creativity of our team to generate involvement and pride as we continually improve our business. Research our market and competitors and beat them in our response to strategic opportunities. Build a world-class reputation for providing high quality products at superior value for money. Exploit flexible systems and processes in all aspects of our business to maximise competitive advantage. Grow the business profitability and create a high return for our shareholders to secure their continued investment.

In the West, these are often referred to as the elements of a mission statement and may be found displayed in offices and in the reception area of the company. Let us see how they may be used to determine what to benchmark using the statement related to employees. Develop the knowledge, skills and creativity of our team to generate involvement and pride as we continually improve our business. The statement probably sounds good, and most would agree with its aims. However, the problem with both this and the other statements is that more of them are measurable in the form they are presented. For example, what is meant by the terms Develop the knowledge, skills and creativity or involvement and pride or continually improve our business? Although these expression sound nice, they probably have different meanings to the authors because there are no precise measures. If this vagueness is not reviewed, then there could be considerable dispute at a later date as to whether they were being achieved. Some might think good progress is being made against their interpretation, others may be disappointed. To be specific, we can use the tree diagram method. To do so, the statement may be written in a box on the left hand side of a sheet of paper for example: Develop the knowledge skills and creativity of our team and continually improve our business

Then next step will be to identify the drivers which will be used to determine whether the objectives in the statement are being achieved. These usually appear in the mission element itself and are shown underlined to the right of the previous statement. Develop the knowledge skills and creativity of our team and continually improve our business These then become 'objectives' to be achieved if the mission statement is to have any tangible value. What do we mean by 'knowledge'? How will we measure it? What do we mean by 'skills'? How will we measure them? Once we have identified the means of measure we then need to determine our current performance for each. In many cases we will not know and will have to find out. We will next need to set goals for each. However, in most instances this will prove difficult because until we have some idea as to a) their relative importance and also what is being achieved by others it will be impossible to do other than have a wild guess. This is where we must begin to Benchmark. Step three therefore will be to identify the means or measures which will determine whether the objectives is being achieved. Step four involves statement of the current situation. It sounds easy, but most organisations attempting this for the first time are usually shocked to find that little of the relevant information has every been collated. However, it is essential that the information is retrieved if benchmarking can be done effectively.

Some information will be easily obtained, and some will already be known. Statistics related to labour turnover, absenteeism, etc. is analysed in most organisations. Step five, involves the setting of targets. This is where benchmarking comes in. Targets for each of the measures will vary in importance and will be related to the goals of the business. Considerable thought must be given to this. Take, for example, Safety as a measure of business improvement. Let us suppose that we wish to agree a realistic target for lost time accidents. We may have found that the current situation is 120,000 man hours between lost time accidents. We wish to set an improvement target for this bus cannot agree on a figure. One person may say lets halve lost time accidents. Another may say no, even that number is too many, lets reduce by ten times. Eventually, another member of the group may say, perhaps we should find out what others achieve. The quest then will be to agree on which companies to ask or how to get the information. In the United Kingdom, there exists a Royal Society for the Prevention of Accidents (ROSPA), they keep statistics on the accident records of different companies and different industries. Data can be gained from them which will enable the setting of targets. Obtaining benchmark data on safety, finance and technology is relatively easy. Usually there is an abundance of such information in magazines, newspapers and available databases. However, other kinds of benchmark data are less easy to obtain and may cover a wide variety of topics. In these cases, it is usual to plan and prepare a benchmark visit to some other organisation. The use of the tree diagram method is ideal as a means of identifying the questions which need answers and to obtain the maximum benefit from a benchmarking visit. Step six is who to benchmark? To answer this question, it is necessary to take each i ntended target in turn and ask the question. Where can this data be obtained? In most cases there will be several sources, these could include any or all of the following:

Government or ministry lists (in the UK we have the Inside British Industry Scheme ). Consultants - they acquire considerable knowledge about their client companies and can give good advice s to where to seek help. Conference proceedings. Trade associations. Benchmark clubs - usually linked to some related database, i.e. Dunn & Bradstreet. Company visits (in own country and internationally). Other government trade missions.

Considerable benchmarking activity involves visits to other companies and depending on the amount of pre-planning can be either very effective or almost a complete waste of time. Before the formalising of benchmark activities, most company visits fell into the latter category. Using a planning sheet, a more detailed plan can be made. Similar to the following where the specific questions can be listed, with space provided for the results. Such a plan will ensure the maximum value of a benchmarking visit, but always be prepared for a surprise, well, two surprises. Firstly, do not expect the organisation being studies to be better than yours at everything. We all have things that we intend to improve sometime but never seem to get around to it. Maybe you are better than the source organisation in some features. If so, perhaps you might share this with them or even invite then to visit you as part of a mutual arrangement. Many companies are now beginning to do this in the West. Also, as a second surprise, you will almost certainly see some things on occasions that you did not expect and for which you were not prepared. This is particularly the case when the benchmarking source is in a difference industrial sector from your own. Since benchmarking has become popular, it has become apparent that whilst people in the same industry tend to do the same things the same way, in many cases, people in different industries often do the same things in different ways. This is probably because people tend to move around in the same industry and when they do, they take their knowledge with them, so it is shared. Also, people in the same industry usually read the same trade magazines with the same effect. Therefore, when we benchmark in different industries, we frequently have surprises, these industries are referred to in benchmarking jargon as parallel industries. Sometimes we can make very big breakthroughs in knowledge from such cases.

A graphic example was the breakthrough made in Japan following World War II, in the manufacture of ships using the block construction method. Here, the breakthrough came as the result of a senior shipbuilding engineer being transferred to aircraft production. He realised that the methods used for building aircraft could also be used for building ships. When he did this he found that he could build ships in one tenth of the time previously taken. When this was done, Japan rapidly became the worlds number one producer of civilian ocean going vessels. Let us now see how the concept of benchmarking can be used in Quality Circle activities. Again, we have the question, what to benchmark? To arrive at the answer, we can use the same procedure as that described for top management. Each Quality Circle belongs to a particular segment of the organisation which has its own targets and goals. In many cases, these targets and goals are known to the Quality Circles, particularly where Hoshin Kanri style manageme nt is being used. Sometimes, however, this is not the case and the circles may be uncertain as to what is expected of them. Either way, the Quality Circle can still participate in this concept. It only means that there will be a small additional step for the groups with the less clear role. Let us briefly look at how the Quality Circle can use the benchmarking process. Step one - using the affinity diagram method, each Quality Circle member may write down a number of goals that he or she believes they would like to see achieved by their work areas in one, two or three years, this must be agreed in advance. In the same way s described earlier, the members should group these with others of a similar type, and a short descriptive sentence written. These will form the elements of the mission. A typical example might to to make our section the most productive in the company using the skills and creativity of us all! This looks very similar to the example given earlier, although in this case it applies to ourselves. When you have the opportunity, try this with the members of your circle and see what ideas your group comes up with. Step two - involves the determination of key drivers in the statement. In our case, this is easy. Note the key words which were taken from the original ideas suggested, most productive, skills and creativity of us all. Step three - from the key drivers, as what would be the measures for each of these? In the case of most productive the answers will vary depending upon the type of work being done, but usually there are fairly clear measures of productivity such as lead times, availability due to breakdowns, reworking, scrap or unusable work. These can be structured in tree diagram form as previously described. For practice, you might like to think about how you would do this for skills and creativity of us all. To help do this, imagine yourselves in about three years time or whateve r scale you choose, trying to determine whether or not this had been achieved. What measures would be involved. Remember, if you cannot measure it you cannot manage it! Step four - for each of these, attempt to determine what is our current performance? The changes are that in many cases, this will involve the use of the data collection and analysis tools you learned for quality circles activities. Step five - setting of target performance. This is the benchmarking part of the process. Here the question will be where can we obtain information on best in class performance for each of these features? The answers will include:

Proceedings from QC circle conventions Correspondence with circles in other companies Ask other circles when attending conventions Magazines Managers and technical specialists Correspondence with any possible source of information

Step six - from benchmarking to action. When benchmark data becomes available it enables the establishment of targets to improve performance. For example, a circle in a production unit may know that current process availability is 84%. The

remaining 16% is lost due to unscheduled interruptions in the flow of work, breakdowns and set up losses. The team have conducted a benchmarking study and have found that a team in another organisation have managed to improve process performance to 94%. This has enabled the Quality Circle to set a target for its own improvement, and they have also obtained information on how this may be achieved. It can readily be appreciated that benchmarking is an activity that can be performed at all levels in an organisation and in all types of work groups. Why not use benchmarking in this convention to learn many ways in which your groups achievements may be measured.