8
Benchmarking
Chapter Objectives
Defining benchmarking and understanding its need Understanding the process of benchmarking Identifying the critical factors to success Understanding the current performance Planning the benchmarking exercise Studying and analyzing the results Understanding limitations and pitfalls
Benchmarking
Benchmarking is the systematic search for best practices, innovative ideas, and highly effective operating procedures. Benchmarking considers the experience of others and uses it.
Reasons to Benchmark
Benchmarking is a tool to achieve business and competitive objectives. It is powerful and extremely effective when used for the right reasons and aligned with organization strategy. Some of the reasons are:
Benchmarking can inspire managers (and organizations) to compete. Benchmarking allows goals to be set objectively, based on external information. Benchmarking partners provide a working model of an improved process, which reduces some of the planning, testing, and prototyping effort. As the old saying goes, Why reinvent the wheel? Benchmarking enhances innovation by requiring organizations to constantly scan the external environment and to use the information obtained to improve the process.
Process
Organizations that benchmark, adapt the process to best fit their own needs and culture. Although the number of steps in the process may vary from organization to organization, the following six steps contain the core techniques.
1. 2. 3. 4. 5.
6.
Decide what to benchmark. Understand current performance. Plan. Study others. Learn from the data. Use the findings
Deciding What to Benchmark
Benchmarking can be applied to virtually any business or production process. Improvement to best-in-class levels in some areas will contribute greatly to market and financial success, whereas improvement in other areas will have no significant impact. Most organizations have a strategy that defines how the firm wants to position itself and compete in the marketplace.
Some other questions that can be raised to decide high impact areas to benchmark are:
1.
2.
3. 4.
Which processes are causing the most trouble? Which processes contribute most to customer satisfaction and which are not performing up to expectations? What are the competitive pressures impacting the organization the most? What processes or functions have the most potential for differentiating our organization from the competition?
In deciding what to benchmark, it is best not to choose too large a scope Pareto analysis can be a helpful technique for deciding what processes to investigate.
Understanding Current Performance
To compare practices to outside benchmarks, it is first necessary to thoroughly understand and document the current process. It is essential that the organizations performance is well understood
Several techniques, such as flow diagrams and cause-andeffect diagrams can be used When documenting the process, it is important to quantify it Special care should be taken when using accounting information. Most accounting systems were developed to satisfy external reporting requirements to the tax and regulatory authorities
Planning
The Benchmarking Team should do planning considering following:
what type of benchmarking to perform: internal, competitive, and process. what type of data are to be collected the method of data collection. candidates to serve as the benchmark to be identified. Identifying the best firms to find a benchmark is a research project. timetables for each of the benchmarking tasks : Techniques like Gant Chart, PERT, etc. can be effectively used The desired output from the study.
Studying Others
Benchmarking studies look for either description of how best-in-class processes are practiced or the measurable results of these practices. For this purpose, internal sources, data in the public domain, original research, ormost likelya combination of sources are used. Three techniques for conducting original research are:
Questionnaires: Questionnaires are particularly useful to ensure respondent anonymity and confidentiality, when data are desired from many external organizations and when using a third party to collect information. Site visits: Site visits provide the opportunity to see processes in action and for face-to-face contact with best-in-class operators. Site visits usually involve a tour of the operation or plant followed by a discussion period. Focus groups: Focus groups are simply panels of benchmarking partners brought together to discuss areas of mutual interest. Most often the panels are comprised of people who have some previous joint benchmarking activity.
Learning from the Data
Benchmarking studies can reveal three different outcomes.
External processes may be significantly better than internal processes (a negative gap). Negative gaps call for a major improvement effort. Process performance may be approximately equal (parity). The internal process may be better than that found in external organizations (positive gap). The finding of a positive gap should result in recognition for the internal process.
Following steps should be taken in in case of negative gaps
Identifiable benchmark gaps must be described and quantified. Once best-in-class practices are described and understood, key process measures should be quantified. When best-in-class processes have been described and quantified, additional analysis is necessary to determine the root causes of the gaps
Using the Findings
When a benchmarking study reveals a negative gap in performance, the objective is to change the process to close the gap. The findings must translate to goals and objectives, and action plans must be developed to implement new processes. Process changes are likely to affect upstream and downstream operations as well as suppliers and customers. Therefore, senior management has to know the basis for and payoff of new goals and objectives in order to support the change. These changes have to be considered and incorporated into the strategic planning process. When acceptance is gained, new goals and objectives are set based on the benchmark findings The generic steps for the development and execution of action plans are:
1. 2.
3.
4. 5. 6. 7.
Specify tasks. Sequence tasks. Determine resource needs. Establish task schedule. Assign responsibility for each task. Describe expected results. Specify methods for monitoring results.
Pitfalls and Criticisms of Benchmarking
The most persistent criticism of benchmarking comes from the idea of copying others. Benchmarking isnt very helpful if it is used for processes that dont offer much opportunity for improvement. Benchmarking is also not a substitute for innovation
Summary
The organizations which have intentions to grow and perform well should measure themselves against the best industry practices. Benchmarking provides a systematic approach to achieve this purpose. It primarily contains two elements, first, doing comparative performance measure on the basis of well-established metrics and second, understanding why their own performance differs from the targeted values. Benchmarking can be adapted to any business or production process. The organization must indentify critical processes or business measures, which it wants to benchmark and at the end achieve it. Several techniques are available to carry out the benchmark studies. Organizations must ensure that business ethics are maintained in obtaining such data and should avoid copying the processes blindly.
