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Emerald Article: Benchmarking: a process-driven tool for quality improvement Mohamed Zairi, Rob Hutton

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To cite this document: Mohamed Zairi, Rob Hutton, (1995),"Benchmarking: a process-driven tool for quality improvement", The TQM Magazine, Vol. 7 Iss: 3 pp. 35 - 40 Permanent link to this document: http://dx.doi.org/10.1108/09544789510087742 Downloaded on: 02-06-2012 References: This document contains references to 15 other documents Citations: This document has been cited by 4 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 1892 times since 2005. *

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Perspectives Benchmarking: a process-driven tool for quality improvement

Mohamed Zairi and Rob Hutton

Introduction
The adoption of total quality management has resulted in many companies dramatically improving their competitive position, with a focus on meeting and exceeding customer requirements while dramatically reducing the cost of non-conformance. However, while total quality produces incremental improvements in all processes, for some organizations this may not be enough. For some organizations a quantum leap in process performance is needed for them to remain competitive. This was the motive for the development of benchmarking, which was pioneered by Rank Xerox as a response to a competitive crisis when traditional competitor analysis was found to be inadequate. Quality guru Joseph M. Juran recently commented that much of the success of Baldrige Award winners can be put down to the achievement of stretch goals by benchmarking. Stretch goals are performance targets that cannot be attained by the pedestrian pace of the ordinary learning curve, but require an organization to signicantly reengineer the way they do business. The links between total quality and benchmarking are therefore obvious establishing processes and objectives based on industry best practice that result in better meeting of the internal and external customer requirements. Benchmarking is stimulated by an organizations drive to accelerate the cycle of continuous improvement, and to add an external perspective to their total quality culture. There is, however, considerable confusion as to what benchmarking is, how it differs to competitive analysis and what is the most effective type of benchmarking. This article aims to describe the types of benchmarking and to highlight what is the most effective way of applying this powerful and frequently misunderstood process improvement tool.

The authors Mohamed Zairi is Unilever Lecturer in TQM at the Bradford University European Centre for TQM, where Rob Hutton is a Research Assistant. Abstract Suggests that successful TQM initiatives are frequently spurred by stretch goals created by benchmarking an organizations performance and practices with others. Differentiates results and process-driven benchmarking. Explains how TQM and benchmarking link with the philosophy of continuous improvement

Results-driven and process-driven benchmarking

Benchmarking may involve an organization accepting that its performance in certain areas is not competitive and that a dramatic improvement is needed. Some organizations state that they rely solely on the ideas and innovations of their own people and that considering other organizations practices is an admission of defeat. As history so painfully 35

The TQM Magazine Volume 7 Number 3 1995 pp. 3540 MCB University Press ISSN 0954-478X

shows, an organization that waits for selfimposed invention in every process may nd that crisis arrives before breakthrough, and in such cases continued arrogance may lead to failure. Many organizations, of different types, are beginning to recognize that discovery is just as good as invention, and benchmarking can provide a route to discovery. However, confusion as to what benchmarking actually is has resulted in many companies using a results or cost-driven approach, the objectives of such benchmarking being to achieve purely a cost reduction. This involves them comparing some aspect of their performance with those of superior performing competitors, usually using some intermediaries such as consultants. This approach is characteristic of the short-termism in companies that cite strong nancial management as their major business strategy. As the processes which are achieving that superior performance are not understood, goals are frequently set without consideration of the as is performance, or the organizations capability. Not surprisingly, the results of this approach are poor. The performance gap is not closed and goals are not attained, therefore, benchmarking in such companies can be a very negative experience. Benchmarking, when carried for maximum benet,
Figure 1 Process-driven and results-driven benchmarking Results-driven benchmarking

is a process-driven activity which requires an organization to have a fundamental understanding of its as is process and the superior performing benchmark process. This means in terms of both its outputs and practices. The aim of the benchmarking exercise is to incorporate transferable practices into the organizations inferior performing process and in this way a dramatic improvement in process performance can be achieved. Competitive cost-driven benchmarking has been the most common type of benchmarking carried out in the West, and has been a major catalyst in helping companies reduce costs. However, it is somewhat surprising that cost has been the main emphasis of benchmarking efforts, considering in most markets product differentiation, rather than low-cost production, will determine success or failure. Process-driven benchmarking when applied to processes that effect product differentiation, can enable companies to improve dramatically their competitive position by enhancing areas such as product features, quality, new product development, reliability, customer service brand image, etc. The contrast between the results-driven and process-driven, benchmarking approaches is shown in Figure 1.

Competitor Benchmarking Business organization Costs reductions (incremental improvements)

Process-driven benchmarking

P A Benchmarking C D

Benchmarking partner Better understanding of process practices Business organization

Great cost reductions

Superior performance

36

Cost-driven benchmarking is frequently referred to as the quick-dip approach, as only supercial process understanding is needed. As one of the essential prerequisites to effective benchmarking is a detailed understanding of business processes, the limitations of the quick-dip approach can be seen. This also highlights the importance of having a total quality culture in place (with documented, measured and continuously improved processes) before considering benchmarking.

Benchmarking and competitive analysis

Within many organizations the denitions of, and differences between, benchmarking and competitive analysis are often confused. Frequently, organizations carrying out competitive analysis believe they are benchmarking. Company-wide understanding of denitions for both are needed if that organization is to gain benet from them. Competitive analysis is a powerful tool for strategy formulation because it quanties competitive gaps in cost, quality and timeliness. In addition, increased understanding of competitors strengths and weaknesses leads to more effective strategy formulation. It is an essential part of the strategic planning process. Conventional competitive analysis is usually conducted as three largely independent streams of analysis. The areas of analysis are: (1) Reverse product engineering; e.g. product designs, costs, process technology, etc. (2) Financial analysis; e.g. total business economics, capacity utilization, paths to market, resource commitment, etc. (3) Fieldwork; e.g. interviews with suppliers, distributors, customers to establish how different approaches are being received in the marketplace. Competitive analysis is especially useful when management is considering a major strategic choice, e.g. acquisition or divestiture, make/buy, entry/exit, or business restructuring. Detailed and vigorous competitive analysis has also been used to trigger intensive internal development programmes. However, competitive analysis often fails to catalyse effective turnaround programmes (as found by Xerox in 1979). In many companies competitive gaps are large and well known, and yet the lagging company fails to act, frequently 37

because they do not know how to attain near comparable performance. A.S. Walleck et al.[1] found that detailed competitive analysis, useful though it is, can delay managers from making a rational assessment of the root causes of inefciency, waste and lethargy, and can even lead a company off in the wrong strategic direction. They identied three faults latent in the nature of competitive analysis, faults that very often lead to the wrong action, inaction, or delay: (1) Prisoner of own industry: Focus on one industry can prevent breakthroughs suggested by the performance of companies in other industries. The measures are historically based, therefore the best outcome is competitive parity or incremental advantage. (2) Misleading direction: Competitive analysis quanties performance gaps, but gives little indication of how excellent performance is achieved and sustained. It relies on secondary sources of information, therefore, the actions proposed by competitive analysis may be diametrically opposed to the actions that must be taken to close performance gaps. (3) Analysis paralysis: Analysis of direct competitors always raises more questions than it answers. The competitor, almost always, is buried under a mass of noncompeting products and businesses. Financial data includes them all, is outdated, incomplete and therefore largely inaccurate. These conditions can cause endless debate with little relevant analysis and momentum resulting. Traditional competitor analysis views as a threat only companies with the resources to erode margins and market share in the next planning period. Resourcefulness, the pace at which new competitive advantages are being built, rarely enters in. Many managers have found, to their cost, that a businesss initial resource endowment (whether large or small) is an unreliable indicator of future global success. Hamel and Prahalad[2] make the following comparison:
Traditional competitor is like a snapshot of a moving car. By itself, the photo yields little information about the cars speed or direction whether the driver is out for a quiet Sunday drive or warming up for a grand prix.

Competitive analysis is obviously a useful starting point, but process-based benchmark-

ing goes far beyond it. While competitive analysis focuses on discrete product and performance comparisons, benchmarking transcends industrial boundaries to search for the best practice operating and management skills that produce those products.

Benchmarking initiating change

Unlike competitive analysis, which is usually carried out by a small group of managers, process-driven benchmarking requires the active participation of line personnel who perform that process. Therefore, processdriven benchmarking is more than an analytical procedure, it is tool for the encouragement of appropriate and necessary change. In the quick-dip approach, the performance gap is revealed and it may act as a good barometer, but the resulting objectives set may not be appropriate. The contrast between benchmarking approaches as change agents is shown in Figure 2[3]. Process-driven benchmarking sets stretch goals based upon results already achieved by world leaders in similar activities. These goals are not limited to product results, they extend to the processes that produce those results.
Figure 2 Benchmarking as a change agent

The fact that many Baldrige Award winners have already achieved stretch goals demonstrates the power of benchmarking. Benchmarking can be extremely useful in overcoming management complacency about the status quo and in exposing incorrect perceptions about the companys and competitors strengths and weaknesses. It encourages management by fact. Through participation in structured eld visits, managers can be exposed to superior operational practice, and satisfy themselves that the benchmarks others achieve are valid and comparable. Consequently, a benchmarking exercise can build enthusiasm and commitment to change far earlier and more effectively than reacting to historical data derived from competitor analysis.

Benchmarking and total quality management the links

A market-driven organization has been described by Day[4] as:
A commitment to a set of processes, beliefs and values that permeate all aspects and activities of the organization [....] for the purpose of achieving superior performance by satisfying customers better than the competition.

Business as usual (BAU) TQM = bottom line Good barometer

Best in class (BIC)

TQM = tools, systems, empowerment Measures true competitive gap Corporate culture of continuous improvement The quick-dip approach Process-driven benchmarking Commitment = satisfy customers requirements Dangerous approach - False sense of security - Misinterpretation of data obtained - Stretch objectives - Long-term focus Requires proper strategy - Time, resource and commitment - Has to link with strategic goals Extension of internal standard of effectiveness

TQM = not visible

Culture = BAU

Internal standards not known

38

In a total quality organization the culture is focused on continuous process improvement to better meet the needs of internal and external customers. Total customer satisfaction is the ultimate aim and the policies and strategies are wholly market-driven. As a result, the processes and activities of the organization are aligned for the optimization of value-added activities. Benchmarking adds an external perspective to a total quality organization. It ensures that the wheel of continuous improvement is turning in the right direction, that is, towards achieving higher standards of competitiveness (see Figure 3). Many companies have adopted benchmarking for this very reason, e.g. Alcoa, AT&T, Kodak, etc. Many prominent authors on benchmarking[5-8] have stressed that organizations need benchmarking to have an understanding of the external environment for the setting of performance goals, and to ensure that they respond to the needs of all stakeholders. The integration of total quality management, performance measurement and benchmarking comprises the essential elements of competitiveness. It establishes a culture of continuous improvement, provides external perspective, and encourages the release of the energies and creativity of an organizations employees (see Figure 4). This integration considers the voice of the customer by identifying current and future demands, and the voice of the process through establishing the organizational capability to deliver customer wants. In addition to adding external awareness, benchmarking ensures that every process is at least competi-

Figure 4 The integration of total quality management, performance, measurement and benchmarking

Quality

TQM approach

Delivery

Continuous improvement

Process benchmarking

Cost

Source : [3]

tive. It moves a total quality organization from continuous improvement to continuous learning.

Conclusion
Perhaps the major reason for the proliferation in benchmarking activity, is the success of the main proponents of the art. Benchmarking was not developed by an academic or theorist, it was developed as an organizational-wide activity by a company facing a competitive crisis of staggering proportions, i.e. Rank Xerox in 1979. Benchmarking is now widely accredited with being one of the main factors behind many corporate-wide improvements in performance. Process-driven benchmarking looks beyond the discrete product evaluations of competitive analysis and results-driven benchmarking, to compare manufacturing and management processes. It therefore enables an organization to identify not only what is the best performance standard, but how it is achieved. It is also a highly visible way of monitoring comparative performance over time, to ensure that any negative performance gap is being closed. Process-driven benchmarking extends the search for best practices beyond immediate competitors to consider organizations from various industries, to reach for the best of the best performance levels. Frequently, surprising similarities in processes can be found between companies in different industries. By adapting appropriate ideas from best practice, regardless of its origin, into the organizations 39

Figure 3 The links between benchmarking and total quality management

TQM Meeting internal and external customer requirements

Benchmarking Establishing objectives based on best practice

Performance teams Involving employees in solutions to work practices

Performance management Communicating objectives and recognizing employees for performance

Source : [3]

own processes a signicant performance improvement can result. Process-driven benchmarking enhances the external perspective of an organizations total quality programme and is, therefore, a timely and valuable quality improvement tool. A total quality culture represents the ideal environment for process-driven benchmarking to improve signicantly the processes that are critical to business success. By introducing such benchmarking, an organization ensures that it knows the performance levels needed to be world competitive and understands the processes by which this can be achieved.

Camp, R.C., Learning from the best leads to superior performance, Journal of Business Strategy, August, 1992. Codling, S., Best Practice Benchmarking The Management Guide to Successful Implementation, Industrial Newsletter Ltd, Bedford, 1992. Balm, J.B., Benchmarking: A Practitioners Guide for Becoming and Staying Best of the Best, QPMA Press, Chicago, IL, 1992. McNair, C.J. and Leibfried, K.H.J., Benchmarking A Tool for Continuous Improvement, Harper Business, New York, NY, 1992.

Further reading
Camp, R.C., Benchmarking: The Search for Industry Best Practices That Lead to Superior Performance, ASQC Quality Press, WI, 1989. Camp, R.C., A bible for benchmarking by Xerox, Financial Executive, July/August 1993. Juran, J.M., Strategies for world-class quality, Quality Progress, March 1991. Kearney, A.T., Turning Trigger Points into Triumphs, Monograph No. 3, A.T. Kearney Business Consultants, July 1992. Porter, M.E., How competitive forces shape strategy, Harvard Business Review, March/April 1979, p. 86. Porter, M.E., Competitive Advantage, The Free Press, New York, NY, 1985. Zairi, M., Measuring Performance for Business Results, Chapman & Hall, London, 1994.

References
1 Walleck, A.S. et al., Benchmarking world-class performance, The McKinsey Quarterly, Number 1, 1991. Hamel, G. and Prahalad, C.K., Strategic intent, Harvard Business Review, May/June 1989. Zairi, M. and Leonard, P., Practical Benchmarking: The Complete Guide, Chapman & Hall, London, 1994. Day, G.S., Market-driven Strategies: Processes for Creating Value, The Free Press, New York, NY, 1990.

2 3

Commentary
Benchmarking was described by one commentator as one of the few comprehensive change capability tools, providing a balanced combination of target focus, skill and knowledge input, and the will to succeed (see the Quality inside-out and outside-in article in the last article of The TQM Magazine, Vol. 7 No. 2, Day and Toledano, for more detail). 40