The nuts and bolts of benchmarking
Benchmarking - the buzzword of the mid-90s. Is it just another management fad, or is it the illumination that we have been seeking for so long?
So much is now being written and said about benchmarking that simply assumes everyone knows what it is all about. I want to take this opportunity to clarify some terms, explain some processes and, I hope, make the concept plain instead of arcane.
So, what is this benchmarking all about?
You can benchmark performance indicators, usually expressed in numbers such as :
Or you can benchmark business processes which drive performance indicators, such as :
There are four basic types of benchmarking.
In most large companies there are similar functions in different business units. One of the simplest benchmarking exercises is to compare these internal operations. The objective of internal benchmarking is to identify the internal performance standards of an organisation.
The advantages of internal benchmarking are first, there is often a significant amount of information sharing accompanying internal benchmarking. Second, many organisations are able to obtain immediate gains by identifying their best internal practices and transferring those to other parts of the organisation. This internal knowledge can become the baseline for later investigation and measurement involving external benchmarking partners.
The disadvantage of internal benchmarking is that it fosters an introverted view. It is all too easy to ignore that other firms have the edge on you if you are concentrating on outperforming internal rivals.
Benchmarking can be done externally against competitors. Direct competitors are the most obvious to benchmark against. The objective is to compare companies in the same markets that have competing products or services or work processes. eg Coca Cola vs Pepsi.
The advantage of competitive benchmarking is that you can see what your related performance is. The main disadvantage is that information is very hard to obtain, beyond that in the public domain.
You can benchmark others in the same industry who may have the same products or services but are not competitors in the same market. Industry benchmarking tends to involve comparisons between firms that share some common technological and market characteristics and to concentrate on specific functions. For example, Telecom Australia might benchmark its billing process against the billing process of British Telecom.
The big advantage of industry benchmarking is that it is easier to identify willing partners, since the information is not going to a direct competitor. The disadvantages are cost and the fact that the most renowned companies are beginning to feel overwhelmed with benchmarking visits and some are even charging a fee for access.
This type of benchmarking focuses on excellent work processes rather than on the business practices of a particular organisation or industry. Some business functions or processes are the same regardless of dissimilarities of the industries.
Generic benchmarking can be very effective even though it is generally the most difficult. It has the potential of revealing the best of best practices. It requires broad conceptualisation but careful understanding of the generic process.
Choosing which type of benchmarking to use depends on what you want to benchmark.
Benchmarking is usually treated as a structured process. The structure is best provided by the development of a step by step model.
A word of warning here - the structured process should not add complexity to a simple idea, and the structure should not get in the way of the process.
Process models have two basic attributes that make them useful when used appropriately.
Any type of benchmarking process model should provide an adequate framework for the successful planning and execution of a benchmarking exercise. It should be flexible enough to encourage people to modify the process to suit their needs and project requirements.
Models can help interpret any terminology that is required in the benchmarking process. A particular virtue of using a model is that it facilitates the development of a shared vocabulary. Such language models provide a plan of action and behaviour that can be understood by anyone in the organisation. The various process steps or stages of a model help to reinforce the vocabulary, which is like a shorthand.
For example, the word "recycling" is used at the end of several benchmarking process models to denote the concept of continuous improvement and to encourage the linking of benchmarking activities. The word "recycling" may activate a variety of images to different people. So putting the word in the context of a benchmarking model helps people interpret the intended meaning of the word.
These plans or maps specify logical sequences of activity to produce the desired result. Anyone could come into a benchmarking exercise at any time and understand the stage or phase.
The benchmarking process should be consistent within an organisation. Although there should be flexibility to accommodate some variation, there is no need for a unique benchmarking process for every department, division or location in an organisation.
The ability to develop cross-functional or cross-divisional benchmarking teams is hindered by the development of different models.
Different models and approaches to benchmarking within an organisation indicates the existence of different communications, training programs and possible management cultures in different segments of the company.
The result is inefficient use of resources, duplication of effort and confusion among employees confronted by a variety of different models within their own organisation.
Multiple processes also create confusion among the organisation's benchmarking partners who would expect some level of consistency among the approaches used by the various sub-groups. The lack of coordination among the divisions forces the benchmarking partners, as information providers, to produce multiple reports.
Multiple models usually indicate multiple databases. Producing records and results becomes fragmented within an organisation. Duplication of effort and lack of coordination probably also represent significant costs.
Thus the challenge is to construct a generic benchmarking model that could be applied to any benchmarking project by any type of organisation.
There are many benchmarking models to get you started. Most contain many of the same ingredients. One reason for this is that those creating the models were strongly influenced by early published examples shared through quality networks created by, for example, Alcoa, AT & T, Florida Power and Light, Motorola, Westinghouse and Xerox. Another reason is that the early models worked, and not surprisingly, companies that received the Baldrige National Quality Award and shared their benchmarking process, specifically Motorola, Westinghouse and Xerox became the models for others to benchmark.
Whatever model you choose, let it be agreed upon by all involved in the benchmarking project and used consistently by all benchmarking teams.
It is important that the benchmarking process be customised to the needs, capabilities and culture of the individual organisation. Benchmarking has to be seen as integral to the business strategy - not just an add-on. What is benchmarked must be important to the whole organisation.
The business area or process chosen must be one that, if improved, will further the strategic objectives of the organisation. So what is to be benchmarked is based on some type of critical need.
Every organisation will approach the benchmarking process from its own perspective and will need to customise the generic benchmarking process accordingly.
The first stage in benchmarking is to plan the exercise. This plan should fit within the mosaic of the company-wide quality plan, which, in turn, should be integrated with the strategic business plan. This strong linkage to the quality planning process and strategic business plan indicates process benchmarking's support of TQM. The objective of the planning stage of benchmarking is to determine what to benchmark and against whom to benchmark.
The first step in this stage is to identify the strategic intent of the business unit or process being benchmarked.
For the purpose of making performance improvements through benchmarking it is important to adopt a view of the organisation as a collection of business units or processes. A business process can be defined as "a sequence of activities that people perform on inputs to produce outputs".
Usually a business has a mission statement that summarises its major purpose. From the mission statement can be derived typical deliverables expected by customers of the business unit or business process.
For example, typical strategic deliverables of, say, a logistics function might include:
The objective is not only to ensure that the logical deliverables of the business unit are benchmarked, but also the perceived future problem areas.
The next step is to select the processes to benchmark.
Whether something should be benchmarked depends very heavily on how important is the process in the internal supplier/customer chain or in satisfying end users or consumer needs How significant is the problem to be benchmarked in relation to other areas where benchmarking resources could be directed? Will your customers notice the difference if you implement best practice for this business process? Will they change their behaviour significantly enough to make a visible impact on the results of the organisation? If the answer to any of these questions is no, the subject for benchmarking may be something important but not important enough.
The key to determining what to benchmark is to identify the output or outcomes or product of the business unit. The product may not be readily apparent.
In a manufacturing operation the output is almost always a physical, visible, quantifiable product. It can be seen, measured and compared with other competing products. But what is the product of a business unit that provides a service? We need to identify who wants this product. Who is the customer?
Then it is time to identify the processes' customers' profiles and set of expectations.
The customer is the individual or group with a critical need. The customer's expectations drive the identification of the products, services or processes to be benchmarked, the specific kinds of information required, and the specific companies or types of companies that should be included in the benchmarking investigation. They also establish the time frame.
Finally, Stage 1 is completed by selecting the critical success factors to benchmark.
These are the major factors which must be dealt with exceedingly well if the enterprise is to be really successful. Choose a business process or processes based on these factors. Then once the key issues about the performance of that process are known, choose the few key performance indicators of critical success factors (CSFs) that you believe measure these key aspects of process performance. The integration of benchmarking with other types of total quality tools is one of the greatest opportunities to link CSFs with meaningful business results. The more specific and generic your CSFs, the more likely you will be provided with relevant information by your benchmark partners.
There are three levels of critical success factors:
Objective : To select, train and manage the benchmarking team .
The first thing is to select the team members.
Benchmarking exercises can be conducted by individuals, but most benchmarking exercises are team activities. Think of the workload and the knowledge requirements.
A team represents the different perspectives, special skills, variety of business connections the individuals bring to the benchmarking process. The word 'team' has connotations of common purpose or goal, coordination, cooperation, communication, motivation. For benchmarking you definitely want a team!
The team structure will be influenced by the size and scope of the benchmarking exercise which will depend on a number of factors such as:
Any benchmarking project will require:
There are three types of teams required for a benchmarking exercise:
The lead team is mainly concerned with building and maintaining commitment for the benchmarking process throughout the organisation. In practice it does this by :
The composition of the lead team should reflect its key responsibilities and could include :
The role of the Preparation Team is:
The Preparation Team needs to be able to take an overview of the process they are benchmarking and could include :
The role of the Visit Team is:
The Visit Team needs to be a bridge between the preparation team and the benchmarking partner and is generally composed entirely of members of the preparation team.
Of course, the Lead Team, Preparation Team and the Visit Team can be identical in their composition. The important thing is to recognise the different roles and ensure that they are carried out..
Train the team as necessary:
Objective : To identify best practice companies and to gather benchmarking information about the performances and practices of the best practice companies.
Self analysis is an essential step to effective benchmarking. One of the fundamental rules of benchmarking is to know your own processes, products and services before you attempt to understand the processes, products and services of another organisation.
Why is this so important? Because without a thorough inventory of your own internal products and processes you may not realise the extent of your improvement opportunities; because without an accurate understanding of yourself, how can you calculate the potential gap that exists between your outcomes or activities and those of the best practice organisations you wish to benchmark; because without a thorough internal analysis you may be by-passing some important internal benchmarking opportunities.
To identify how you currently perform the process, collect and review any information already available on the process. This may include :
A benchmarking partner is any person or organisation that supplies you with information relating to your benchmarking exercise. The term partner implies an ally or one who enters into an association with you. This step can proceed in parallel with your self analysis step. There are a number of ways to find a benchmarking partner including :
The selection of benchmarking partners is critical as it will determine the process comparability and the potential for quantum leap change.
Site visits are important to gain an in-depth understanding of the systems and processes of the best practice companies you have chosen as benchmarking partners.
Objective: To identify and analyse the gaps between best practice and your own business processes.
All the collected information is used to identify performance gaps between benchmarking partners.
When comparing the performance of companies, adjustments must be made for differences due to :
(a) Analyse findings from the site visits.
You may have to develop a composite picture that reflects the input of many companies. Synthesise the process information you have gathered in a way that is appropriate for your company's culture.
This is your opportunity to compare your current performance against the benchmark you have discovered. You can then identify performance gaps and their causes.
Objective : To develop strategies and action plans to close the gaps.
What needs to be done to match best practice for this process? Identify tasks, responsibilities, resources and time targets for the change process.
Prepare abudget and acost benefit analysis, and put it into practice.
The critical factors for successful benchmarking are:
The kind of benchmarking you should undertake is dependent on your company's characteristics and circumstances. Benchmarking has to be seen to be integral to the business strategy and not just an add-on. It should be based on some kind of critical need. And benchmarking should be a continuous process in your organisation. As David Kearns, Chairman of the Xerox Corporation commented "striving for best practice is like running in a race without a finish line". Best practice constantly changes, and continuous benchmarking can help an organisation identify what it needs to do in order to remain in the race.